Insolvency disputes can arise from the time an individual or company enters into the statutory regime of the Insolvency Act 1986 and the supplemental legislation.
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Secure PaymentInsolvency disputes can arise from the time an individual or company enters into the statutory regime of the Insolvency Act 1986 and the supplemental legislation.
Contact UsInsolvency disputes can arise from the time an individual or company enters into the statutory regime of the Insolvency Act 1986 and the supplemental legislation. A person or company can enter the insolvency regime either voluntarily or when imposed by creditors. Insolvency disputes cover whether an individual or company should fall into the insolvency regime and disputes surrounding the historic conduct of former directors. Parties involved in insolvency disputes can include; creditors, insolvency practitioners, and former directors.
Insolvency disputes range from an application to set aside a statutory demand to enforce a debt to complex insolvency litigation matters such as an application to make a former director personally liable for a company’s debts.
The former can often involve a highly contentious application as to whether or not an individual or company owes an “undisputed debt”. This being the key to entitle a Court to Order an individual be made bankrupt or a company be placed into liquidation.
The latter can involve a forensic analysis of the conduct of the former directors of a company spanning many years. This is often undertaken for the purpose of showing that the former directors have breached their fiduciary duties to the Company when it was solvent and that such action now results in them becoming personally liable for their actions.
When an individual is no longer able to pay their debts when they fall due they may be made “bankrupt”. This can take place voluntarily at the instigation of the individual or by an application to the court by a frustrated creditor.
When a company is no longer able to pay it falls due it may be placed into insolvent liquidation. This can take place voluntarily initially via the directors or by a winding up petition from a creditor.
Both individuals and companies can make use of other means of restructuring their debt within the insolvency regime. This includes individual voluntary arrangements, company voluntary arrangements, administration and receivership.
Insolvency practitioners and former directors are no longer able to call physical meetings of creditors unless called by at least 10% in value of the creditors, 10% in number of the creditors or at least 10 creditors.
Insolvency is defined as when a company or individual is unable to pay debts as they fall due or where liabilities exceed assets. The term is used for both businesses and individuals.
A debt can become time barred. That means that the creditor has delayed too long and the debtor can defend the claim on the grounds that the time for pursuing the debt has expired. The normal rule is that a debt must be recovered within 6 years from the date of the invoice. However, the rules on “limitation” are complex and many issues may interfere with this initial rule.
When an individual is made bankrupt all of their debts fall subject to the bankruptcy. All of these debts are then under the control of either the Court appointed official receiver or trustee in bankruptcy. Assuming the bankrupt co-operates, when the bankrupt is discharged the debt does not continue.
When a sole trader or a partner in a business is made bankrupt all of their assets fall into the control of the trustee in bankruptcy. Their role is to understand all of the bankrupts debts, realize all of their assets and then distribute the proceeds of those assets to all of the creditors in accordance with a strict statutory formula.
Disputes in insolvency may often arise from overdrawn directors loan accounts. This is where a director has borrowed money from the company on the assumption that they will declare a dividend at the end of the financial year. This is often how directors pay themselves as it is often tax efficient. However, it can cause problems when insolvency occurs as the loan is a debt that needs to be repaid.
Secured creditors with a fixed charge
Administrator/Liquidator fees
Preferential creditors
Secondary preferential creditors (expanded to include HMRC for certain taxes)
Secured creditors with a floating charge
Unsecured creditors (including all other HMRC debt)
Shareholders
An insolvency situation exists where an individual or company is either no longer able to pay their debts when they fall due. This can be analyzed by reference to cash flow insolvency or balance sheet insolvency.
When a company becomes insolvent a liquidator is appointed who becomes the officer of the company and takes over the affairs of the company so as to realize its assets and pay the creditors.
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