Cutting through the insolvency paperwork jargon – A guest blog by Menzies LLP
In this week’s guest blog, the Menzies LLP Creditor Services team highlight the areas you should be looking for on receipt of insolvency paperwork and, most importantly, whether there will be a dividend.
Priority of payments in a company insolvency
The priority of payments in a company insolvency determines where creditors rank in terms of likely return. Below is a non-exhaustive list of priority:
- Secured creditors – with a fixed charge
- Preferential creditors – employees of the company owed arrears of wages and holiday pay
- Secondary preferential creditors – some HMRC arrears
- Prescribed part
- Secured creditors – with a floating charge
- Unsecured creditors
Most common insolvency paperwork
Please ensure a proof of debt is completed with supporting documentation, this will ensure your vote is counted.
WHEN – Circulated to creditors within eight weeks of the company entering administration.
WHY – Administrator seeking agreement to the proposals.
WHAT SHOULD I DO – Review the proposals and the estimated outcome statement.
Company Voluntary Arrangement (CVA) proposals
WHEN – Circulated to creditors at least two weeks before the CVA is to commence.
WHY – Company seeking approval of their CVA proposals at the meeting of creditors.
WHAT SHOULD I DO – Review the financial forecast for the company, the comparison between an insolvency scenario versus a CVA and the estimated timing / quantum of contributions to unsecured creditors.
Creditors’ Voluntary Liquidation (CVL) report
WHEN – Circulated to creditors at least a week before the CVL is to commence.
WHY – The liquidators work with the directors to produce a ‘Statement of Insolvency Practice 6’ (SIP6) report, which contains details of the company’s failure and the director(s) ‘Statement of Affairs’.
WHAT SHOULD I DO – Review the report and look for any reference of a ‘decision date’.
Decision procedures and request for meetings
Decision procedures are often used by the Insolvency Practitioner to ratify their appointment. The most common (except in a CVA) is a ‘deemed consent’ procedure to confirm the appointment. The Insolvency Practitioner will provide their SIP6 report along with a ‘decision date’. If the information is not complete, or you have queries regarding it, creditors should object to the ‘deemed consent’. Objection can be achieved by the ‘10/10/10’ rule. The following criteria needs to be met:
- 10% in value of creditors.
- 10% in number of creditors.
- 10 creditors.
Court appointed insolvencies (Compulsory Liquidation or Bankruptcy)
An Official Receiver is appointed by order of the court. They will report to creditors within eight weeks of the appointment. Creditors who hold 25% or more of total creditors can request the Official Receiver to commence a decision process to have their choice of liquidator/trustee appointed. If over 50% then a Secretary of State appointment can be requested.
For further information on the above, please click here to listen to our latest podcast ‘Cutting through the insolvency paperwork jargon’. Alternatively, to discuss any queries you may have, please visit our dedicated Creditor Services page or contact the authors of this article:
Giuseppe Parla, Senior Business Recovery Manager and Licensed Insolvency Practitioner email@example.com
0207 465 1919
Alexandra Davies, Business Recovery Manager
Carly Barrington, Business Recovery Assistant Manager
0203 795 3459