Company Owes Me Money and They Have Gone Into Liquidation
Having a company that owes you money and they have gone into liquidation. Can leave you wondering what to do next and how to recover your funds.
Don’t panic! We’re here to guide you through the process and help you make informed decisions, as well as provide tips to prevent future losses.
Understanding Your Creditor Status
The first step in tackling a company’s liquidation is understanding your position in the creditor hierarchy.
Creditors are classified into two main creditor groups namely: the secured creditor, and unsecured creditors.
The distinction between these two creditor groups is crucial, as it determines your rights and the likelihood of recovering your owed funds during the liquidation process.
Secured creditors are those who have a legal claim to a company’s assets, such as debts such as a mortgage or loan. Unsecured creditors are those who do not have a legal claim to a company’s property or assets.
Secured creditors hold a security interest in some or all of the debtor’s assets, meaning they have an interest in the debtor’s property that can be sold to settle the debt in cases of default.
This privileged position gives them precedence over unsecured creditors during the liquidation process.
To be eligible for payment from the liquidation, secured creditors must submit a proof of debt form to the liquidator within the specified timeline.
Potential outcomes for secured creditors may include dividend distribution or bad debt relief.
Unsecured creditors, on the other hand, have provided loans to a company without any collateral.
While they have the right to be informed of the liquidation’s progress, they are lower in the payment hierarchy compared to secured creditors.
This means that unsecured creditors often do not recoup the full amount of debts owed to them.
Additionally, they face a substantial risk of not receiving any dividend from the liquidation process.
In situations where the new owner of the liquidated company has few assets and the liquidated company lacks a valid retention of title clause, unsecured creditors may not receive any return from the liquidation.
Filing a Claim with the Liquidator
When a company enters liquidation, it’s crucial to file a claim with the appointed liquidator to recover your owed funds.
The liquidator will send you a ‘proof of debt’ form, which requires information regarding the debt, with such details as the amount owed, the circumstances of the debt, and any security held.
Failure to submit your claim within the specified timeframe could result in your claim being considered invalid or given a lower priority.
The Insolvency Act 1986 and the Insolvency Rules 2016 regulate under the insolvency act the procedure for submitting a creditor claim after a company has been liquidated.
Proof of Debt Form
A proof of debt form is a legal document that demonstrates your claim for a debt owed by an insolvent estate.
This form should include relevant information such as the amount owed, the cause of the debt, and any security held.
Once the form is submitted, the liquidator will assess the claim and decide whether to accept or reject it.
If the claim is accepted, you will be included in the list of creditors and eligible to receive a dividend from the liquidation.
Timeline for Submitting Claims
The timeline for submitting claims in liquidation can vary depending on the country and relevant laws.
Typically, creditors have a limited timeframe to submit their claims, ranging from 3-6 months from the liquidation date of an asset sale.
It’s important to act promptly and adhere to the specified deadline to avoid jeopardizing your chances of recovering your owed funds.
Navigating the Liquidation Process as an Unsecured Creditor
As an unsecured creditor, navigating the liquidation process can be challenging.
You may wonder whether you can reclaim goods supplied to the insolvent company or how to participate in creditors’ meetings to stay informed during the process.
Retention of Title Clause
The retention of title (ROT) clause is a provision in a contract that states the seller retains legal ownership of the goods until full payment is received.
If you have a ROT clause in your contract with the insolvent limited company, you may be able to reclaim the goods you supplied to a limited or insolvent company.
A creditors’ committee is a group of unsecured creditors appointed to represent the interests of all unsecured creditors during the liquidation process.
The purpose of this committee is to provide unsecured creditors with representation and allow them to express their opinions at creditors’ meetings.
Potential Outcomes for Unsecured Creditors
It’s essential to understand the possible outcomes for unsecured creditors when navigating the liquidation process.
Dividend distribution and relief of bad debt are potential outcomes for unsecured creditors.
Dividend distribution refers to the payment of corporate earnings to eligible shareholders. In the context of liquidation, it is a payment made to creditors from the proceeds of the liquidation.
Unfortunately, unsecured creditors typically receive minimal, and limited company if any, funds after other creditor groups have been compensated.
Bad Debt Relief
Bad debt relief is a process in which unsecured creditors can apply to the liquidator for a portion of their debt to be waived.
This relief enables businesses to reclaim the Value Added Tax (VAT) they have paid to HM Revenue & Customs (HMRC) on invoices that will remain unpaid.
To claim bad debt relief, businesses must submit a claim to HMRC within a six-month period of the invoice becoming due to pay up.
Legal Options for Unsecured Creditors
As an unsecured creditor, you may have legal options available to you during a company’s liquidation process. These options include claiming interest on your debt or taking legal action against the liquidated company’s directors.
Claiming Interest on Debt
Unsecured creditors may be eligible to claim interest on their debt if it was stipulated in the initial agreement and they can provide evidence of having sent an interest reminder.
To claim interest on debt in liquidation, a written demand for payment must be made before the date of liquidation.
Once the debt is proven in insolvency proceedings, the creditor’s claim for the interest is provable as part of the debt, with the exception of tax liabilities.
Taking Legal Action
Initiating legal action against an insolvent company can be a complex and time-consuming process. Before taking legal action, it’s essential to familiarise yourself with the legal process and the applicable laws.
Moreover, seeking counsel-free consultation from a legal professional is highly recommended to ensure that the necessary steps are taken and that your rights are safeguarded.
Tips for Preventing Future Losses
While navigating the liquidation process can be daunting, there are proactive steps you can take to prevent future losses.
Two key strategies include conducting credit checks and diversifying business relationships.
Conducting Credit Checks
Conducting credit checks is crucial for businesses to assess the creditworthiness of potential clients or partners.
This process helps safeguard businesses from potential losses resulting from bad debt or fraud.
To conduct a credit check, obtain a credit report from a reliable credit bureau, verify the accuracy of the information, and consider other factors like the applicant’s employment history and references.
Diversifying Business Relationships
Diversifying business relationships involves expanding the number of clients or partners a business has or venturing into new industries or markets to reduce risk and bolster market share.
This strategy helps the company to diminish dependence on any company or one customer or partner and ensures the company’s affairs is not exposed to excessive risk.
Researching potential new clients or business partners, networking with industry professionals, and exploring new markets or industries for business, are all recommended practices for diversifying business relationships.
In conclusion, navigating the complexities of a company’s liquidation can be challenging, but understanding your creditor status, filing a claim with the liquidator, and exploring your legal options are essential steps in the process.
By conducting credit checks and diversifying business relationships, you can prevent future losses and protect your financial interests.
Now that you’re equipped with the knowledge and strategies needed to tackle company liquidation, you can confidently face the challenges ahead and safeguard your business’s future.
Frequently Asked Questions
Can you get Money Back if a Company Goes into Liquidation?
Unfortunately, it can be difficult to recover your money in a liquidation situation.
However, if the company has gone into liquidation, you can still make a claim to the liquidator for the money that you are owed.
You will need to provide proof supporting documentation of what goods or services you provided and evidence of how much money is owed to you.
How do I get my Money Back from Liquidation?
If you are owed money by a company in liquidation, the best course of action is to make a claim with the appointed liquidator.
You’ll need to provide evidence such as invoices and contracts that support the amount you’re owed.
Hopefully, this will be a successful process and you will be able to pay to get your money paid back.
Who Gets Paid when a Company goes into Liquidation?
When a company goes into liquidation, secured creditors, preferential creditors and unsecured creditors are typically paid first before any funds are available to shareholders.
Consequently, shareholders are likely to receive the least amount of payment during a liquidation process.
Information For Company Directors
Here are some other informative articles for company directors in the UK:
- Bounce Back Loan Support
- Can A 50-50 Shareholder Put A Company Into Liquidation?
- Can I Be a Director Again After My Business Folds?
- Can I Be Investigated if My Company Goes into Liquidation?
- Can I Buy Back Assets During or After a Liquidation?
- Can I Reuse a Company Name After Liquidation?
- Closing a Company at Companies House
- Company Owes Me Money and They Have Gone Into Liquidation
- Director Advice
- Director Dispute Over Liquidation
- How Can I Turnaround a Failing Business
- I’ve Received a Bounce Back Loan Demand Letter from the Bank
- Is a Director Liable if a Company Can’t Repay a Bounce Back Loan
- My Business Is Struggling with Energy Bills
- On What Grounds Can a Company Director Be Disqualified?
- What happens if I can’t pay a Bounce Back Loan or CBILS Loan
- What Happens If Your Company Can’t Break Even?
- What Happens to Employees When Going Into Liquidation?
- What Happens to My Pension in Liquidation?
- What Happens When a Company Goes into Administration
- What is a Company Limited by Guarantee?
- What is a Winding Up Petition
- What is an Insolvency Practitioner?
- What is Fraudulent Trading for a Limited Company
- What Is Limited Liability?
- What’s the Difference Between a Liquidator and the Official Receiver?
- Who Values the Assets in a Company Liquidation
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