How to deal with personal and corporate insolvencies as a creditor

Both businesses and individuals have suffered financially throughout 2020 as a consequence of the coronavirus pandemic.

There has been a marked reduction in formal insolvencies over the past year resulting from state assistance to companies during these troubled times through concepts such as the furlough scheme, availability of “bounce back” loans and restrictions on the use of corporate statutory demands and winding up petitions. Once that state assistance disappears and the world gets back to commercial “normality”, I suspect we will see a tsunami of corporate and personal insolvencies.

Behind every personal or corporate insolvency, there are numerous out-of-pocket creditors involved who will suffer to a greater or lesser extent. In this article, insolvency specialist Tony Sampson explores what the creditors could receive and looks at some options for recovering the debt.

How do creditors receive payment out of an insolvency?

Fortunately, the payment a creditor may receive out of an insolvency (to offset their outstanding debt), whether it be an individual or a corporate insolvency, is not limited to simply what the office holder (whether that office holder be a trustee in bankruptcy, liquidator or administrator) can sell the available assets for.

There are a whole host of other potential recoveries that the office holder can make, which could swell the pool of available assets in the insolvent estate to realise and pay to creditors by way of dividends.

Overturn antecedent transactions

There may have been antecedent transactions before the individual or company went into the insolvency procedure. These could include:

• Preferences – i.e. paying and preferring selected creditors rather than other creditors
• Transactions at an undervalue – i.e. transferring to others assets free of charge or at an undervalue
• “Bogus” charges put in place over company assets – i.e. attempting to put in place security over assets at the expense of “unsecured creditors”

Overturn some or all of the above, and the creditors could be paid in full.

The office holder has wide powers to investigate the affairs of insolvent individuals, companies and directors to make recoveries.

Make recoveries

When faced with an insolvency, it is important that creditors do not simply write the debts off and seek to recover their VAT, but rather get themselves appointed on the creditors’ committee and make sure that if there are any recoveries to be made, they are made!

Creditors should make sure they have specialist advice in place if they are trying to recover outstanding debts. For the reasons above it is not unknown for recoveries to be used to pay creditors in insolvencies, and an insolvency lawyer can help with this process.

Get in touch with Tony Sampson using the below details for further advice.