Getting involved will help achieve the best possible outcome for you
Why you should get involved
Losing money you are owed by a company or an individual that has become insolvent can be a difficult, stressful and time-consuming situation. But, getting involved in the procedure means you are much more likely to get the outcome that you deserve, because:
Getting your money back If the Office Holder knows who you are, knows how much you are owed and knows about your relationship with the insolvent party, you stand a much better chance of getting some of your money back. In most instances if you are an unsecured creditor you are unlikely to get back all that you are owed, and unfortunately might not get any money returned at all; but being involved gives you a much better chance than if the Office Holder isn’t aware you have a claim in the first place. Importantly, if you have ‘Retention of Title’ terms in your contract with the debtor you should approach the Office Holder as soon as possible and advise them of your rights. Also, if you have any information about the whereabouts of assets, or actions the Office Holder could take to improve realisations, share it with them – it may result in a better outcome for you.Bringing directors who have committed bad practice to justice Sometimes those working for insolvent companies have done something which has made matters worse. This can be anything from borrowing money from the company to committing fraud. These people will only be brought to justice if the insolvency practitioner is aware of those actions. However, it’s not always obvious to the insolvency practitioner that there has been bad practice; they often rely on creditors to tell them – this is another reason why you are so important to the insolvency procedure.
Finding out about an insolvency
Finding out that an insolvency procedure has begun is the first part of engaging as a creditor.
There are several ways to find out if an individual or company, who owes you money, has entered an insolvency procedure:
Creditor actions The first is easy: because you, as someone who is owed a debt that hasn’t been paid, have asked the court to make an individual bankrupt or because you’ve asked the court to ‘wind-up’ a company. You can read more about how to go about doing this on the government’s website here (bankruptcy) and here (winding-up a company).Being contacted by an office holder If you have not been involved in starting insolvency proceedings, it is most likely that you will find out an insolvency procedure has begun because the Office Holder dealing with the case has contacted you.
Once they are appointed, an Office Holder will try to find out who the insolvent individual or company owes money to. To do this, they will principally rely on information provided by the insolvent individual or company’s directors. They will also go through the insolvent individual’s or company’s financial records and their correspondence, including letters and emails.
Once the Office Holder has established who they think the creditors are, they will contact the creditors to let them know an insolvency procedure has begun (this will most likely be by post). The Office Holder may also invite the creditors to a creditors’ meeting. A creditors’ meeting may not always be held, although creditors can make a request for the Office Holder to hold one.Other ways to find out Unfortunately, it is not always possible for the Office Holder to identify everyone that is owed money by an insolvent company or individual.
If you are aware of an insolvent individual or company that owes you money, and you have not been contacted by an Office Holder, it is important that you get in touch with them to lodge your ‘claim’ for how much you are owed. Unless you have lodged your claim with an Office Holder, you will not be able to take part in the insolvency procedure, and you might not have any money returned to you.
There are a number of ways you can find out the name and contact details of the Office Holder you need to speak to.
If you are trying to find out the name of an Office Holder in an individual insolvency in England and Wales, you should check the Insolvency Service’s ‘Individual Insolvency Register’. In Scotland, you should check the Register of Insolvencies.
To find out who has been appointed to deal with an insolvent company, you should check national or local press reports or search the ‘Gazette’ (the Gazette is the UK’s official ‘journal of public record’). Separate editions are published in London (covering England and Wales), Edinburgh, and Belfast.
The information you need to hand
It is very important that you can prove to the Office Holder that you are owed money by an insolvent company or individual. Once the Office Holder has this proof, they can process your claim.
You can request a ‘proof of debt’ form (also known as a statement of claim form) from an Office Holder (although you should have been provided with one when they first contacted you).
The information you might need to give to an Office Holder includes things like invoices, correspondence, or financial statements.
Things can get a little bit more complicated if you have a ‘Retention of Title’ claim. If you have a Retention of Title claim (often abbreviated to ROT), you should send a copy of your terms and conditions to the insolvency practitioner.
Insolvency practitioners have the power to investigate any wrongdoing by an insolvent company or individual. If you are aware of any wrongdoing by a company or individual that relates to their insolvency, you should tell the insolvency practitioner. The insolvency practitioner will be guided by input from creditors.
Examples of ‘wrongdoing’ include:
• Trading while the directors knew or should have known that the company could not avoid insolvency;
• Fraud by a company’s directors
• Hiding assets, like cars, houses, boats, or jewellery;
• Transferring assets to others (for free or for a price below their true value) before an insolvency procedure began
The information you will receive
Because the Office Holder is responsible to the creditors in an insolvency, they will make regular reports to either keep creditors up-to-date with what is happening or to explain to creditors why they have made a particular decision.
Information might be posted directly to creditors or hosted on a secure website (to save on postage costs) – the Office Holder will provide creditors with details of how to access online information. In Scotland, liquidators do not currently have the option of posting information online, so you will receive documents through the post.
You may receive the following updates from an Office Holder:
Notification The first thing you will receive from an Office Holder is notification that an individual or company has entered an insolvency procedure. This notification will probably consist of several pages including a covering letter and an official notification of any meetings being called to begin the procedure. In most cases, the initial letters are merely a legal notification that the Office Holder is obliged to send. They will set out the financial situation of the insolvent company or individual, but this information will be reliant on information provided by the debtor. This information may not be up-to-date or correct, so it is important to respond to this letter to correct any errors. At this stage, you might also receive some information about the fees that an insolvency practitioner would charge for handling the case. In most corporate insolvencies, the insolvent business will stop trading. In cases where the business will continue to trade, the initial correspondence will indicate that this is the case and will propose terms of trade. Depending on the type of insolvency procedure, you will usually receive initial correspondence within one month of a procedure beginning or at least a week prior to any creditors’ meeting.Proof of debt A Proof of Debt form (sometimes called a ‘Statement of Claim’ form) will usually be included in initial correspondence from an Office Holder. You can use this form to detail any debts you believe you are owed by the insolvent company or person. It is important you fill the form out and return it to the Office Holder as soon as possible.Meeting and Proxy Notices If a creditors’ meeting is to be held, you will receive a written notice from the Office Holder. The notice will also include the details of what will be covered at the meeting. If a meeting is to be held, you should also receive a ‘proxy form’. If you do not wish to (or cannot) attend a meeting in person, you can ask the chair of the meeting to vote on agenda items on your behalf – the chair would be your ‘proxy’ (you can appoint an alternative proxy too). You can provide the details of how you wish to vote using the proxy form. This needs to be returned to the Office Holder as soon as possible and prior to any meeting scheduled creditors’ meeting. In Scotland you can take the proxy along to the meeting. Several insolvency firms offer ‘creditor services’, including acting as proxies at creditors’ meetings on clients’ behalves.Proposals (administration only) If you are owed money by a company in administration, you will receive a pack of documents called the ‘Administrator’s Proposals’. You should receive these within eight weeks of the administration starting. The most important information in these reports relates to: • What the insolvency practitioner (in this case, the ‘administrator’) intends to do with the business;• Details about the initial creditors’ meeting;• What led to the insolvency;• The steps taken by the administrator so far;• The administrator’s fees;• A breakdown of the administrator’s work and costs so far;• And how the administrator expects the insolvency to end. Other documents in the pack will include a notice of the first creditors’ meeting, financial information about the company, and Proxy and Proof of Debt or Statement of Claim forms.SIP 16 'pre-pack administrations' If a ‘pre-pack’ administration has taken place, you should receive a document complying with Statement of Insolvency Practice 16 known as a ‘SIP16’ report from the administrator within seven days of the business sale. This report gives details about the pre-pack, including the price obtained for the business, how the assets were valued, and whether the new owners of the business were connected to the old owners.Progress Report (or ‘Annual Report’) In most insolvencies, the Office Holder has to provide creditors with progress reports for each 12 month period from the date of their appointment (in England and Wales administrations, Scottish liquidations and some Scottish bankruptcies, updates are required every six months.) The reports will usually include: • What money the Office Holder has been able to raise to repay creditors;• What money has been taken to pay for the expenses of the insolvency (including fees);• A breakdown of the time spent on the case by the Office Holder and their team;• Details of what the Office Holder still needs to do;• And details of money paid out to creditors.Final Report At the end of an insolvency procedure, creditors will receive a ‘Final Report’. This report summarises the entire insolvency. The report will cover the whole period from the appointment of the Office Holder up to the point at which the ‘final meeting’ of the insolvency is called.
If you have not received any of the above information, if you need help completing various forms, or if you have questions about any of the above information, please speak to the Office Holder handling the insolvency in which you are a creditor.
Attending a creditors’ meeting
A creditors’ meeting is very important. It is a chance for you to:
• Approve the appointment of an insolvency practitioner (or request that an alternative is appointed);
• Approve the proposals made by the insolvency practitioner or Official Receiver regarding how they intend to handle the insolvency;
• Approve the proposals for how the insolvency practitioner will be paid;
• Quiz the individual or the company’ directors;
• And, at a ‘final’ meeting, review an insolvency.
If you can’t attend the creditors’ meeting in person, you are allowed to send someone in your place as a ‘proxy’. Your proxy can vote and ask questions on your behalf. Several insolvency firms offer proxy services for their clients.
Creditors’ meetings are usually held at the very beginning and very end of an insolvency procedure (although in compulsory liquidations, bankruptcies, or administrations the first meeting may take place a while after the procedure has started).
Creditors’ meetings are not always automatically held by an Office Holder, but creditors can request one (a combination of creditors owed at least 10% of all the insolvent debtor’s debts can call a meeting. In a Scottish sequestration the requisite amount is 25%). Requests for a meeting to be held must be made to the Office Holder in writing.
With some exceptions, decisions are made at creditors’ meetings if they are approved by more than half (by value) of the creditors voting (i.e. majority voting is used).
Approving the appointment of the insolvency practitioner In voluntary insolvency procedures (for example, administrations or creditors’ voluntary liquidations), the insolvency practitioner is initially chosen by the insolvent business or individual. Compulsory insolvencies (except receiverships) and Debt Relief Orders are automatically handled by the Official Receiver. in all of the UK except Scotland where they are all handled by insolvency practitioners. If there is a chance in a compulsory liquidation or bankruptcy that there may be substantial assets to be distributed amongst creditors then an insolvency practitioner may be appointed, either by the calling of a creditors’ meeting or,by using a rota (run by the Official Receiver) of local insolvency firms (not applicable to Scotland). In Scotland, an insolvency practitioner is usually appointed by the court when the ‘winding up’ order is made. They are called an ‘interim liquidator’ and within 28 days they will call an initial creditors meeting to approve or appoint an alternative liquidator. A creditors’ meeting is an opportunity for creditors to approve the appointment of the chosen insolvency practitioner. You can use the first creditors’ meeting to propose that another insolvency practitioner should act (the appointment of the alternative insolvency practitioner will then be voted on at the meeting). If an Official Receiver has not passed a case to an insolvency practitioner, but you would like them to, you may propose this at a creditors’ meeting. Approving the proposals made by the insolvency practitioner The Office Holder will make a proposal for how they plan to deal with an insolvent company or individual: this will be shared with creditors either at the first creditors’ meeting or by letter beforehand if the creditors’ meeting is not held straight away (or, not held at all). You are allowed to challenge these proposals at the creditors’ meeting and the proposals can be put to a vote.Approving the proposals for how the insolvency practitioner will be paid An insolvency practitioner will make a proposal to the creditors that sets out how they are to be paid for their work. The insolvency practitioner may propose that they are paid based on the number of hours they spend working on a case (known as a ‘time-cost’ basis); they may propose a ‘fixed-fee’ for their work; or they may propose that their fee is a percentage of the money recovered for creditors. In most instances an insolvency practitioner's fees are based on the time they have spent on a case. Official Receivers are always paid on a percentage basis. Insolvency practitioners’ firms have a standard set of hourly rates that they will seek to charge (a ‘charge-out’ rate). The rate is set to reflect the seniority, skills and experience of staff and, where applicable, the complexity and risks of the appointment These rates cover staff costs, overheads, and other expenditure the firm needs to recover. The ‘headline’ rate may be a starting point for negotiation with the insolvency practitioner by the creditors. A recent (2013) government review of insolvency practitioners’ fees summarised the profession’s average hourly fees: SeniorityFirm Partner/DirectorManagerOther Senior StaffAssistants/Support StaffRange of fees£212 to £800 per hour£100 to £460 per hour£75 to £445 per hour£25 to £260 per hourAverage fee£366 per hour£253 per hour£182 per hour£103 per hour The fees charged by insolvency practitioners depend on the size of their firm, their location, their level of expertise, and the nature of the job at hand. If the insolvency practitioner is being paid by the hour, they will report back to creditors about their activity throughout the case. You should also bear in mind that the insolvency practitioner might not collect their full fee – it depends on how many assets are left in an insolvent company or individual’s possession. Insolvency practitioners in England and Wales must now provide an upfront estiamte of their fees if they are being paid by the hour. The creditors’ meeting (or committee) is the chance for you to ask questions about the insolvency practitioner’s fee. Fees are voted on by creditors and can be negotiated. At the creditors’ meeting, the insolvency practitioner will explain to creditors the reasoning behind their fees proposals. They will give you an idea of the likely complexity of the case and how long it might take to resolve. If the insolvency practitioner proposes that they are paid on a ‘time-cost’ basis, they will provide you with details of their firm’s hourly charge-out rates for all staff. If the creditors’ committee or the creditors can’t agree to the insolvency practitioner’s fees, the insolvency practitioner may apply to court for their fees proposal to be approved. In Scotland, if there is no creditors’ committee the fees will always be approved by application to the court, any approved fees can then be appealed by at least 25% of the creditors if they think that the approved fees are too high. In the rest of the UK, If there is no creditors’ meeting, then the insolvency practitioner is paid according to an official ‘scale’ set out by the government (and used by Official Receivers). When using the scale, insolvency practitioners are paid as a percentage of the money they are able to return to creditors.Asking the debtor or the directors of the insolvent company questions At a creditors’ meeting, you will have the chance to ask the insolvent individual or directors of the insolvent company any questions you may have. This is an opportunity to find out more about a debtor’s finances and the reasons for their financial difficulties.Approve the formation of a creditors’ committee The Office Holder should inform creditors that they can form a creditors’ committee and will give advice on how to do this. Membership is voted on by creditors at a creditors’ meeting and it is up to creditors whether or not one is formed. In company insolvencies the Committee has to consist of at least three and no more than five creditors. If a creditors’ committee is formed, its members will act on behalf of all creditors. Decisions on the case are ultimately the responsibility of the insolvency practitioner, however, the committee is principally there to give advice and agree and approve the insolvency practitioner’s fees. In liquidations, some actions may need to be approved by the committee.Different insolvency procedures and their meetings The purpose and content of creditors’ meetings may vary depending on the type of insolvency procedure. This table sets out some of the key differences: Voluntary liquidationsCompany Voluntary Arrangements/Individual Voluntary ArrangementsCompulsory liquidations/bankruptciesAdministrationsDebt Relief OrdersCreditors’ meetings are required at the start of the procedure and at the end of the procedure. In Member Voluntary Liquidations, shareholder meetings are also required at the beginning and end of the procedure.An initial creditors’ meeting is required to approve the arrangement but no further meetings are required if things run smoothly. The arrangement’s supervisor can call a creditors’ meeting if they want to obtain the views of creditors or change the arrangement. A meeting sometimes takes place if the debtor defaults on the arrangement.An initial meeting may be convened by the Official Receiver if they feel the case should be handled by an insolvency practitioner, or if creditors have requested an insolvency practitioner be appointed. In Scotland there is always an initial creditors’ meeting in a compulsory liquidation. An initial meeting is optional in a Scottish Bankruptcy and can be requested by 25% in value of creditors. Final meetings are required, other than in a Scottish Bankruptcy and a meeting is required to approve an insolvency practitioner’s fees if there is one involved in the case, other than in Scotland where the rules are differentA first creditors’ meeting must be held within 10 weeks of the administrator’s appointment to approve the administrator’s proposals. A creditors’ meeting wouldn’t take place if there are no assets available for unsecured creditors and the administrator is intending to strike the company off the Companies House register at the end of the administration, or if the unsecured creditors will be paid in full .There are no creditors’ meetings for Debt Relief Orders.
Joining the creditors’ committee
A creditors’ committee is usually made up of between three and five creditors. In Scotland in a personal bankruptcy case a single ‘Commissioner’ can be appointed. These creditors are volunteers and they represent the creditors’ interests on a ongoing basis.
It is unlikely that there would be a creditors’ committee in an insolvency involving an Official Receiver.
Members of the creditors’ committee are approved by the other creditors. They must not be a creditor whose claim has been rejected by the insolvency practitioner, and they must not be someone currently in a bankruptcy, or someone who has a conflict of interest.
The creditors' committee is usually chosen at the first creditors’ meeting.
The creditors’ committee is there to:
• Provide the insolvency practitioner with information that will help them trace and collect the insolvent individual’s or company’s assets;
• Identify behaviour that might give the Insolvency Service grounds to seek to disqualify directors from running a company (the insolvency practitioner will file a report on the director to the Insolvency Service);
• Oversee and scrutinise the insolvency practitioner’s work and fees;
• Approving the insolvency practitioner's proposals to take certain actions;
• Provide advice to the insolvency practitioner.
Creditors’ committee members are not paid, but any travel expenses incurred will be treated as a cost of the insolvency in England and Wales (i.e. expenses will be paid out of the remaining assets of the insolvent company or individual after secured creditors receive what they are owed). These expenses cannot be recovered from a bankruptcy in Scotland.
Keeping an eye on insolvency practitioners’ fees
The insolvency practitioner or Official Receiver will normally report to creditors annually (in some insolvency procedures such as administrations in England and Wales, every six months), detailing what funds they have collected, what debts they have been able to repay, and how much they have charged.
If fees are being charged on a ‘time-cost’ basis, the insolvency practitioner will have provided an upfront estimate and will later report on: what hourly fees have been charged; what work has been carried out; and the benefit of that work for creditors. Insolvency practitioners might also detail the work for which they have charged that doesn’t directly benefit creditors but is legally required.
If there is a creditors' committee, it is up to this committee to oversee the fees being charged by the insolvency practitioner.
If the insolvency practitioner wishes to charge fees above those set out in the initial estimate, they will have to seek creditors' permission to do so.
If there is a creditors’ committee, it is up to this committee to oversee the fees being charged by the insolvency practitioner.
If, during the course of an insolvency and there is no creditors’ committee, you are unhappy with the fees being charged by an insolvency practitioner you may call a creditors’ meeting or go to court to challenge them (provided this is done by a combination of creditors owed 10% of the debtor’s debts or 25% of the debtors debts in a Scottish liquidation). Creditors can also ask for further details of fees.
Repayments will usually arrive in the form of a cheque. If you would prefer to receive an electronic payment, you should tell the Office Holder.
If there is money to distribute amongst creditors, secured creditors will be paid first and unsecured creditors last (if there is enough money to go around).
Concerns over the conduct of an Official Receiver or insolvency practitioner
Complaints about Official Receivers or government agencies in charge of insolvency should be directed to the relevant government agency in England and Wales (Insolvency Service), Scotland (Accountant in Bankruptcy) and Northern Ireland (Insolvency Service Northern Ireland).
If you have a complaint about an insolvency practitioner operating anywhere in Great Britain, you should use the Insolvency Service’s ‘Complaints Gateway’.
Although you will make your complaint through the ‘Complaints Gateway’, the complaint will be handled by the relevant regulator. Each insolvency practitioner is regulated by one of eight professional bodies:
You can find out which professional body regulates which insolvency practitioner using the Insolvency Service’s directory.