A business failure or bankruptcy often leads to disputes as creditors, office holders and other third parties disagree over the ownership of assets.

Office holders’ (usually insolvency practitioners) are required under the Statement of Insolvency Practice 2 to investigate the circumstances leading to the insolvency which can result in claims against third parties under the Insolvency Act 1986.

We advise both for and against office holders in preference, transaction at an undervalue/defrauding creditors, misfeasance and wrongful and fraudulent trading claims. These claims generally involve detailed analysis of accounting information as well as a complex factual matrix.

We also regularly help clients with procedural insolvency applications brought pre and post insolvency (including applications under the Company Directors Disqualification Act 1996).

Statutory demand

A statutory demand is served to either obtain payment of a debt due now or in the future or to demonstrate that an individual or company is insolvent. A statutory demand should not be served when a debt is disputed or where there is a cross claim. The party in receipt of the demand can respond in four ways

  • make an application within 18 days of receipt of the petition to set the demand aside
  • make payment in full
  • offer to pay by instalments or
  • offer property as security for the debt.

Bankruptcy and winding-up proceedings

If payment remains outstanding following a statutory demand,  a bankruptcy and winding up petition may be presented to the debtor. If the debt is not paid, the court makes a winding up order the debtor will be placed into compulsory liquidation and it is likely that all bank account will have been frozen.

Rescission of winding-up orders

If your company has been wound up, it is possible to apply to the court for the winding up order to be rescinded. This application must be made

  • made within seven days of the date of the order and
  • supported with evidence of the company’s finances to show the court that the company is not insolvent.

Company restoration applications

Applications for restoration can be made up to six years after the company wound up. If a company was in operation at the time it was struck off, then an administrative application can be made by a director or member for the company to be restored on the register.

Validation orders

If you are subject to a winding up or bankruptcy petition, transactions that you are involved in will be void unless validated by the court. It is best practice to obtain a validation before entering into the transaction and/or before a winding up or bankruptcy order is made. The most common form of validation order is to sanction payment of the petitioning creditor. The court will not just rubber stamp such a request as it’s role is to ensure that the payment is in the best interests of all creditors.

We are often instructed at short notice to make applications urgently. Whilst the majority of our work is routine and the applications are uncontested we can also advise in respect of complex contested application where significant issues of fact and law are in dispute.

Creditors rights in insolvency

When a business or individual that owes you money becomes insolvent all is not necessarily lost. Creditor’s can claim a share of the insolvent estate by lodging a proof of debt form and can also influence the outcome of the insolvency by either attending or voting by proxy at creditor’s meetings convened by the official receiver or an insolvency practitioner.
All too often creditors misunderstand the insolvency process or are ambivalent about what happens after the event itself. Our lawyers work with creditors to ensure that their claim in the insolvent estate is maximised and that they exert influence over the way in which the insolvency process is managed to increase the overall dividend they receive.

Where appropriate we can assist in the transfer of an insolvent estate to another insolvency practitioner who will investigate the business’s accounts and the conduct of it’s directors. This regularly leads to the discovery of further assets in the form of claims against directors and third parties which increases the overall fund available for distribution to creditors.

Claims against third parties and directors

We work with both insolvency practitioners and directors/third parties in pursuing and defending claims brought under the Insolvency Act 1986.
These claims include
  • transactions at an undervalue
  • preferences including the repayment of director’s loan accounts
  • the recovery of overdrawn director’s loan accounts
  • the recovery of company property including book debts
  • claims arising out of wrongful and fraudulent trading
  • claims for misfeasance and breach of fiduciary duty.
 Our experience of acting for both sides in such disputes enables us to resolve disputes promptly or, if negotiation is not possible, pursue the matter vigorously and thoroughly to trial or final hearing.
Where litigation arises out of an insolvent business, there is normally an added layer of complexity. Witnesses may not be willing or readily contactable and there may not be the documentation required to support the claim.  Our team of lawyers work closely with clients to gather evidence, if necessary by using powers under the Insolvency Act 1986 in order to interview witnesses or recover documents.

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