Creditors Costs Of Execution
A judgment creditor is entitled to prove in the insolvency for any unrecovered costs of their execution. The creditor cannot do so where the insolvency intervened in the execution so that the costs are a charge on the proceeds of sale or if the officer charged with the execution has deducted their costs before accounting to the liquidator or trustee for the proceeds of sale.
If execution was levied after the commencement of the winding up, the judgment creditor is unable to claim in the winding-up proceedings for the costs of the execution. The officer charged with the execution is not entitled to claim in the proceedings but must look to the judgment creditor to discharge any shortfall in their costs, and the creditor may make a claim for those costs.
Arrears Of Rent And Related Debts
Many insolvents will be in arrears to their landlords in respect of rent – especially in relation to commercial premises. Arrears of rent are a provable debt in liquidation and bankruptcy proceedings and may be calculated pro-rata where the insolvency order is between payment dates1, though landlords do retain certain rights against the property of the insolvent.
A landlord may also have a claim in respect of loss or damage as the result of the issue of a disclaimer in respect of the leased property.
The landlord might also submit a claim for forfeiture or dilapidations.
1. Rule 14.22
Filing A Proof Of Claim In Chapter 13 On Behalf Of Certain Creditors
Secured creditors and some priority creditors may not file a Proof of Claim, since their debt is not dischargeable, but if the debtor wants to keep the property, or to pay arrearages on the debt, or to include priority creditors in a chapter 13 repayment plan, then he must file a Proof of Claim on their behalf, no later than 30 days after the creditors’ deadline for filing a Proof of Claim.
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Unliquidated Unmatured Contingent And Disputed Claims
Many claims have a specific value and are clearly owed by the debtor. However, some claims have unknown parameters at the time of the bankruptcy filing or become due only after the filing.
An unliquidated claim is one for which there is a definite liability but where the value has not been set. For instance, in the case of a debtor who was involved in a car accident where he was judged to be at fault, but for which an amount of damages has not been set, the victim would have an unliquidated claim.
An unmatured claim comes due sometime in the future in a bankruptcy case, it would be a claim that becomes due after the filing date. An unmatured claim is either accelerated in a liquidation bankruptcy so that it may be paid, or may be extended in a payment plan under a rehabilitative bankruptcy to make it affordable for the debtor.
A contingent claim is one where liability depends on a future event. For example, if the debtor co-signed a loan for his son, then the debtor does not incur a liability for the debt unless his son defaults on the loan.
A disputed claim is one where the liability for the claim is being disputed. For instance, in a car accident, it may take a court case to settle who is responsible and, thus, liable for the accident.
Debts In Relation To Guarantee Given By Insolvent
When a proof of debt is submitted in respect of a guarantee given by the insolvent for the debt of a third party, the official receiver should obtain a copy of the guarantee and, if it was given within the two years preceding the insolvency proceedings, satisfy themselves that it does not constitute a transaction at an undervalue. Where it would appear that the debt is a transaction at an undervalue the proof may be rejected.
The liability under the guarantee will normally be dependant on the principal debtors failure to pay the debt. That being the case, the principal creditor must take into account all sums paid by the principal debtor up to the time they submits their proof, but need not adjust the claim if they receives further sums .
Any proof submitted in the proceedings cannot exceed any limit in the guaranteed amount.
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Postpetition Claims In Chapter 13
There are 2 specific postpetition debts that are treated as allowable claims under Chapter 13, both provided by §1305. Subsection provides an allowable claim for taxes that become payable to a governmental unit while the case is pending.
Subsection allows a claim for postpetition debt that is for property or services necessary for the debtor’s performance under the payment plan. Generally, the debtor must obtain permission from the trustee to incur new debt while the case is pending. If the creditor extends credit to a debtor that did not get permission, then the claim will not be allowed if the creditor knew or should have known that prior approval by the trustee was practicable, but was not obtained.
However, if a subsection 2 creditor files a claim against the estate, it may not be repaid in full during the pendency of the case. The creditor does not need to file a Proof of Claim against the estate it can choose not to file a claim so that the debtor remains liable for it even after the close of the case, since the debt will not be discharged.
Fines And Other Court Penalties And Liabilities
Any fine is not a provable debt1.
Such a definition would not include penalty charges imposed by local authorities or the police.
A liability under a recognisance is not released on discharge. A penalty imposed for an offence relating to public finance is not released without the consent of the Treasury2.
1. Rule 14.2; Magistrates Court Act 1980, section 150
2. Section 281
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Factors That Can Affect Bankruptcy Claim Status
Upon receipt of all Bankruptcy Claims, the Debtor and Court will review the claims and supporting documentation to approve their status before moving forward with devising a Plan of Reorganization. Each Bankruptcy Claim may be subject to objections from the Court or the Debtor. There are several factors that could lead to the Court changing or updating the status of a Bankruptcy Claim.
Council Tax Provable Debts
All outstanding liabilities for council tax for the year in which the insolvency commences are provable debts unless the debtor moves during that year, in which case any liability due for the new property would not be provable1.
This applies whether or not the company/bankrupt was in arrears at the date of insolvency.
1. Re Nortel and others UKSC 52; Kaye v South Oxfordshire DC EWHC 4165
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Power Of A Company To Create A Charge
The legislation provides that a company has unrestricted capacity to borrow unless that power is restricted in the objects of the company in its memorandum of association.
Similarly, unless restricted by the objects, the directors have power to give security for the companys borrowings on such terms as they see fit1.
Technically, borrowing or the giving of a charge in contravention of the objects of the company is void at common law2, though the decision of the directors is binding on the company where the creditor acted in good faith3.
1. Companies Act 2006, section 31
2. Commercial Bank of Canada v Great Western Railway of Canada 16 ER 112
3. Ashbury Railway Carriage and Iron Co v Richie LR 7 HL 653; Companies Act 2006, sections 39 and 40
What Is Covered By The Definition Of Debt In Respect Of A Company
A debt in relation to the winding up of a company means any of the following:
- any debt or liability to which the company is subject at the relevant date
- any debt or liability to which the company may become subject after that date by reason of any obligation incurred before that date; and
- any interest provable.
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Contingent Liability Definition And An Example
A liability is something owed by someoneit sets up an obligation or a debt. In practice, liabilities create legal responsibility.;
A lawsuit or other situation with a potential for loss can create a liability for a business, but its often difficult to know what the amount of the liability will be. These unknown future potential losses are contingent liabilities. Businesses may need to account for these possibilities based on two factors, according to the Financial Accounting Standards Board :;
- Probability that the contingent liability will become an actual liability
- Accuracy of estimating the amount
Say an employer pays an employee off the books in cash and doesnt report the income or the taxes, or pay the unemployment insurance for this employee. If the employee is laid off and tries to file an unemployment claim, the case may come before a state unemployment board. This creates a contingent liability, because the employer may have to pay an unknown amount for the claim, in addition to fines and interest.;;;
Continuing Obligations Under Leases
Where a tenancy was created before 1 January 1996, an insolvent may have obligations under the lease despite the fact that they have assigned it to a third party1. The obligation may be after an assignment where the original lessee may remain liable under covenants2.
Even if the tenancy was granted after 1 January 1996 the insolvent may have a liability under the lease where a guarantee was given to the landlord.
1. Hindcastle Limited v Barbara Attenborough Associates Limited 2 WLR 262
2. Warnford Investments Ltd v Duckworth 1 Ch 127
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Repayment To Finance Company On Behalf Of The Insolvent
The payment of instalments by a person other than the party to the agreement does not result in the transfer of any rights to that third-party1.
Any such payments should be treated as a loan and the person that made them may claim in the proceedings as an unsecured creditor.
1. Bennett v Griffin Finance 2 WLR 561
Contingent Provable Debts In Bankruptcies
What happens if a debtor is made bankrupt after a creditor has issued debt recovery proceedings?
A bankruptcy debt is any debt that the bankrupt owed to the relevant creditor at the date of the bankruptcy order, or a debt which arises under an obligation incurred by the debtor before the bankruptcy order, but one which falls due after the date of the bankruptcy order .
Broadly speaking, a creditor may prove in the bankruptcy if the creditor is owed a debt by the bankrupt even if the debt has not fallen due for payment at the time the debtor goes bankrupt.
A debt in this context, therefore, includes a liability that arises from an obligation to which the debtor was subject when he became bankrupt. But at what point does his obligation arise?
Historically, it was accepted that orders for costs made after the commencement of bankruptcy were not provable debts even if the litigation in which the costs order was made was underway before the debtors bankruptcy. This was accepted because the obligation to pay costs did not arise until the Court made the costs order.
Welcomingly, this position was overturned by the Supreme Court in the case of Re Nortel Companies. Not only has the Supreme Court widened the scope of contingent debts in the context of bankruptcies, it has also set out a universal approach which helpfully clarifies what represents a provable debt.
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A Background On Chapter 11 Bankruptcy
Before we dive into specific bankruptcy Claims Trading facts and details, we would like to set the stage with some background context.;
When a financially distressed company files for Chapter 11 bankruptcy protection with a court, this event does not happen in isolation. Its vendors, suppliers, landlords, business partners, employees, lenders and others who have unpaid bills, wages, and outstanding invoices at the time of the Ch.11 filing are adversely impacted. Legally, these parties who are rightfully entitled to payment are collectively known as “Creditors”, and the Ch.11 company that owes these unpaid debts is referred to as the “Debtor”.
In the course of normal bankruptcy proceedings, Creditors assert their right to repayment by filing a Proof of Claim against the Debtor. The filed “Claim” expressly states the amounts owed to the Creditor based on their accounting records, to which the Debtor is obligated to pay. Creditors typically includealong with the filed Proof of Claim formsupporting documentation as evidence of the Creditors bankruptcy claim.;;
After all of this, Creditors still must wait for the Debtors bankruptcy case to wind its way through the court process before their Claims can be approved and payments issued. Unfortunately, this process can take several years before a Creditor receives any of the amount they are owed.;
Claim Subordination Within A Class
Another factor that can affect the status of a Claim and therefore determine the likelihood of Creditor recovery is the Court deciding to subordinate a claim within a Creditor class. This happens when claim priorities are rearranged due to equitable principles. Claim subordination can cause certain Claims within a class to be reduced to a lower priority level. Consequently, the subordinated claims are likely to receive less or later payouts.;
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Penalty Charge Notices Relating To Parking Etc
Enforcement of certain traffic regulations, for example those relating to parking, driving in bus lanes and disregard of a congestion charge, is a civil matter, for which responsibility lies with the relevant local authority or, in some cases, Transport for London.
Enforcement of contraventions are generally by way of a Penalty Charge Notice imposing a financial penalty issued on the spot or by post by the relevant authority.
Although such charges are often colloquially called fines, they do not meet the definition of a fine given in the legislation and are therefore provable debts.
The Police retain the power to enforce parking and other regulations in certain circumstances and in relation to certain local authority areas. Any contravention that is enforced by the police under the criminal law will be considered to be a fine and will not, therefore, be provable.
Action To Take In Respect Of Property Subject To Finance Agreement
Where the official receiver is dealing with property subject to a finance agreement, they should send the standard letter1 to establish the type of agreement and the amount required to settle the agreement.
The official receiver as liquidator or trustee may pay the amount required to complete the agreement and obtain title to the asset2 if it is beneficial to do so, subject to any consolidation clause. In many cases there is no benefit in taking such action as the amount outstanding on a finance agreement, taking into account interest and charges, is in excess of the value of the item, taking into account depreciation.
Where the finance is a simple credit agreement, the official receiver may deal with the property as an asset in the proceedings.
1. NHP
2. Re Piggin 112 LJ 424
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Proof And Allowance Of Claims In Bankruptcy
2016-05-30For a creditor to receive payment from the bankruptcy estate, it must file a Proof of Claim. A claim is a right to payment, even if it is not fixed in value, or becomes due in the future, or is contingent or disputed. In a chapter 13 bankruptcy, all creditors who want to be paid must file a proof of claim; in a Chapter 7 bankruptcy, the trustee will generally inform unsecured creditors to file a proof of claim only if there are sufficient assets left after paying priority payments and secured claims. If it is a secured claim, then the creditor must provide evidence of that security, including a copy of the agreement providing the security interest and evidence of a perfected lien, which can be a mortgage or trust deed, auto lien, or a UCC-1 statement on inventory or business equipment. Furthermore, the lien must be filed with the appropriate authorities, such as the County Clerk’s office for real estate, the Department of Motor Vehicles for liens on motor vehicles, or a UCC-1 statement filed with the Secretary of State for the state in which the business is located. If the lien is not officially filed, then the debt is considered unsecured.
Obligations can be a claim if they can give rise to a payment as an alternative to performing the obligation. However, if the obligation does not give rise to the possibility of a payment, then the obligee cannot be a creditor of the bankruptcy estate, and the obligation is not discharged by the proceedings.
What Is Contingent Disputed Or Unliquidated Bankruptcy
Bankruptcy filing involves the submission of accurate information in order to ensure the process is fair and transparent. The information submitted plays a very vital role in the bankruptcy court decision making.
The common focus of information can be listed as follows-
- What is the amount of money do you make from all your consistent sources?
- How much dues do you have pending?
- What are the different assets/properties owned by you?
- What is your monthly expenditure budget?
- Was there any transfer of asset recently?
These are some critical questions which are to be addressed before filing for bankruptcy. There has to be some issue with respect to the lender claims for the court to resolve. Either the claim should be disputed, unliquidated or contingent in order for the court to continue with the proceedings of the case. In straightforward bankruptcy cases, the case is about the amount due. For instance, if you havent been keeping up with the car mortgage payments, the net due will be the focus amount in straightforward cases. Learn how you can save your car even while filing for bankruptcy by logging on to Recovery Law Group now.
When realizing the claim amount is complicated
Not all bankruptcy cases can be simple to equate is so easily. They might involve some tedious bits of calculation, estimation, and paperwork. This can happen if the bankruptcy filer has any of the following claims-
- Contingent claim
- Unliquidated Claim
- Disputed Claim
Listing claims and pay off of claims
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