Insolvency order

The Court makes an order declaring the debtor to be insolvent, either on the application of the debtor itself or of one or more of its creditors. The requirement for an order is that the debtor has ceased to pay its debts, i.e. that it has more than one creditor.

Any debtor declared to be insolvent has 8 days following the date of the order in which to appeal. If the insolvency order is made in default of appearance, the debtor has 14 days from the date of the insolvency order in which to object. It is extremely important that the debtor complies with this time limit. An objection or appeal is made by the filing by local counsel of the appropriate application with the Court Registry. Accordingly, the debtor must instruct an attorney to represent its interests in order to file an objection or appeal.

Consequences of insolvency

The insolvency order results in an attachment upon all the assets of the debtor, including those assets that it has acquired during the insolvency. This attachment has retrospective action to midnight of the day of the order. The insolvency order means that the debtor automatically loses control and ability to dispose of its assets. The debtor may therefore not enter into any further obligations intended to be met out of its assets.

Role of the Delegated Judge

The Delegated Judge supervises the management and settlement of the liquidated assets by the Receiver. In respect of some transactions, the receiver requires the express authority, approval or consent of the Delegated Judge. Examples include employee redundancies, termination of leases and the sale of assets. The Delegated Judge ensures that the Receiver remains within the limits set by the law, acts in the interests of the liquidated assets and properly fulfils his duties.

Role of the Receiver

The Receiver is responsible for the management and settlement of the liquidated assets. The Receiver's job includes enforcing the rights of the debtor to assets. The Receiver's first duty is to the joint creditors, although he must also take into account wider social issues such as the continuity of the business and the employment situation. The Receiver's remuneration for this work is determined by the court; this remuneration is the first item to be paid from the assets of the debtor.

Position of creditors

Creditors that, prior to the definitive insolvency order, had a claim against the debtor come within the scope of the insolvency, such that claims arising after the date of this insolvency order are not in principle included by the Receiver in the settlement and will therefore not receive anything from the assets. It is only under exceptional circumstances that debts are deemed to be ‘liquidation expenses'. Liquidation expenses of the insolvent company are debts arising as a result of the settlement of the assets and are paid by the Receiver before the creditors whose claims arose before the insolvency order was made are paid. In principle, the priority debts are those set down by law.

There are several ranks of creditor. The tax authorities and national insurance agency are virtually the highest-ranking creditors in the liquidation. Once the aforementioned liquidation expenses have been paid, these ‘preferential creditors' are the first to be paid from the liquidated assets. Only then is it the turn of the other creditors. The preferential claims are those set down by law.

The remaining category of creditors have unsecured claims against the debtor. Whether they receive any payment depends firstly on the amount of the liquidation expenses and sums owed to preferential creditors and secondly on the assets that the Receiver has been able to collect during the liquidation proceedings. In most liquidation proceedings the unsecured creditors receive nothing.

Creditors may file their claims with the receiver. When filing your claim, you should ensure that you substantiate such claim by enclosing invoices and other supporting documentation. You must enable the receiver to check whether your claim is eligible for verification. If your claim has not been filed in the correct manner, the receiver will notify you accordingly and dispute your claim until such time as you have ensured that your claim has been properly filed.

Creditors with security rights and retention of title

In addition to the unsecured creditors there is a category of creditors with special rights enforceable against the debtor. These creditors can rely on a retention of title, right of recovery, right of retention, pledge, mortgage or other special right. They can enforce their rights outside the insolvency proceedings. Such rights must have been agreed with the insolvent party prior to the insolvency order. Creditors with such a right are not obliged to waive any part of the sums they recover in favour of the other creditors.

It is of vital importance that creditors with such special rights notify the Receiver of these as quickly as possible following the commencement of the insolvency proceedings. Unless and until the receiver is made aware of such rights, he is authorised to sell off the goods or collect the claims that are subject to these special rights as part of the liquidated assets. As soon as these goods or claims are liquidated, the special rights attaching to those goods or claims are lost.

Completion of the liquidation

The liquidation may be completed in several ways. The most usual of these are:

• stopped through lack of assets;
• following the ranking of priority claims, only the preferential creditors receive any payment;
• following the ranking of priority claims, the unsecured creditors receive some payment.

The Receiver will notify all creditors of the way in which the liquidation was finalised. With regard to every insolvency case, the Receiver will ascertain whether it would perhaps be sensible to try to agree some payment schedule with creditors in which a percentage of their claim could be paid in return for full and final discharge. This agreement must always be offered by the insolvent party itself. The Receiver will then issue advice to the creditors and the Designated Judge. The advantage of such an agreement is that the insolvent party will be released from its debts, whereas by stopping or following through with the ranking of claims, the unpaid part of the debts remain payable.