Proof of Debts

Question 1

Insolvency Rules 1986, r.12.3.(1)

Answer 1

Provable debts are, in both winding up and bankruptcy, all claims by creditors against the company/bankrupt, whether they are present or future, certain or contingent, ascertained or sounding only in damages.
Debts that are not provable include:
- A fine imposed for an offence and any obligation arising under an order made in family or domestic proceedings
- Obligations arising under a confiscation order made under s.1 DTOA 1986

Question 2

Insolvency Act 1986, s.278

Answer 2

The bankruptcy of an individual against whom a bankruptcy order has been made commences with the day on which the order is made, and continues until the individual is discharged.

Question 3

Insolvency Act 1986, s.247(2)

Answer 3

A company goes into liquidation if it passes a resolution for voluntary winding up or an order for its winding up is made by the court at a time when it has not already gone into liquidation by passing such a resolution.

Question 4

Insolvency Act 1986, s.381(1)(a)-(b)

Answer 4

Claim must be one that the debtor is subject to at the commencement of the bankruptcy OR one to which debtor become subject after bankruptcy by reason of obligation incurred before then

Question 5

Insolvency Rules 1986, r.13.12(1)(a)-(b)

Answer 5

Claim must be one that the debtor is subject to on going into liquidation OR one to which debtor become subject after going into liquidation by reason of obligation incurred before then

Question 6

Insolvency Rules 1986, r.13.12(2)

Answer 6

For a tort claim against company in liquidation, the damage must have EITHER occurred before liquidation OR all the elements necessary to establish the cause of action exist at that date except for actionable damage

Question 7

Insolvency Act 1986, s.382(2)

Answer 7

For a tort claim against bankrupt, the damage must have occurred before the commencement of bankruptcy

Question 8

Tort Cases

Answer 8

Fairchild: employers are jointly/severely liable
Cape: UK parent made liable for SA subsidiary
Turner & Newall Ltd: Someone whose exposure is “environmental” has the same rights as an employee who has been damaged (preference)

Question 9

Financial Services and Markets Act 2000, Financial Services Compensation Scheme

Answer 9

FSCS will pay up to 90% of compensation to employees injured at work where company is now insolvent

Question 10

Insolvency Act 1986, s.382(3)

Answer 10

Quantification of claims is a matter of opinion

Question 11

Insolvency Act 1986, s.322

Answer 11

The trustee should estimate the value of any bankruptcy debt subject to contingencies or does not bare certain value for any other reason

Question 12

Insolvency Rules 1986, r.13.12(3)

Answer 12

Quantification of claims is a matter of opinion

Question 13

Insolvency Rules 1986, r.4.86

Answer 13

Liquidator should estimate the value of debt that contingent or uncertain

Question 14

Insolvency Rules 1986, r.6.114

Answer 14

A creditor may prove for a debt of which payment has not yet due at the date of the bankruptcy order (subject to r.11.13)

Question 15

Insolvency Rules 1986, r.4.94

Answer 15

A creditor may prove for a debt of which payment has not yet due at the date of the liquidation (subject to r.11.13)

Question 16

Insolvency Rules 1986, r.11.13

Answer 16

Where a creditor has proved for a debt not due at the date of the declaration of the dividend, formula will apply to calculate

Question 17

Re Thellusson [1919] 2 KB 735

Answer 17

Facts: Bankruptcy petition served on debtor but he did not attend hearing and did not know that on 2 January bankruptcy order made (modern equivalent to receiving order); on 3 January debtor borrowed £900 from Abdy who was unaware of any financial problems affecting debtor; £900 paid into debtor’s bank account previously overdrawn by £136

Decision: The loan was refunded, however not because the contract was void for mistake but because: money paid as mistake of law should be refunded, despite not being illegal (rule in ex parte James) as a trustee in bankruptcy is an officer of the Court (material matter) and should be a high-minded person who should not take advantage of a mistake of law (ex parte Simmonds).

Rule: The Court in Bankruptcy ought not to allow its officer to insist upon a rule of law or equity in the administration of an estate in bankruptcy under the control of the Court where such insistence would produce an unjust and dishonest result (N.B. liquidator in voluntary liquidation is not an officer of the court)

N.B. Seem seminar 9 notes, “good faith without notice” (s.307(4)), may keep the £136 now

Question 18

cf Bankruptcy Act 1914, s.30(2)

Answer 18

Since 1986 it does not matter that at the time the debt incurred, the creditor knew that a bankruptcy petition had been presented or that a meeting had been called to put company into voluntary liquidation (as section not re-enacted)

Question 19

Insolvency Rules 1986, r.6.112

Answer 19

In the case of rent or other periodical payments creditor may prove for amounts due and unpaid up to date of bankruptcy order

Question 20

Insolvency Rules 1986, r.4.92

Answer 20

In the case of rent or other periodical payments creditor may prove for amounts due and unpaid up to date of company going into liquidation

Question 21

Insolvency Act 1986, s.322

Answer 21

Interest on arrears up to commencement of bankruptcy are provable as part of the debt except in so far as it is payable in respect of any period after the commencement of the bankruptcy

N.B. Collision controlled by ss.343 or 244

Question 22

Insolvency Rules 1986, r.4.93

Answer 22

Interest on arrears up to liquidation are provable as part of the debt except in so far as it is payable in respect of any period after the company going into liquidation

N.B. Collision controlled by ss.343 or 244

Question 23

Insolvency Rules 1986, r.6.113(1)-(4)

Answer 23

Circumstances in which interest though not legally payable can be included in a proof (bankruptcy)

Question 24

Insolvency Rules 1986, r.4.93

Answer 24

Circumstances in which interest though not legally payable can be included in a proof (liquidation)

Question 25

Insolvency Rules 1986, r.6.115-9

Answer 25

Proof by secured debtors:

• he may prove for the balance of his debt, after deducing the amount realised by security r.6.119(1)
• may voluntarily surrender security for the general benefit of creditors and prove as unsecured r.6.119(2)
• may value security and prove for unsecured balance

N.B. A secured debt is a “bankruptcy debt” even though it is not provable: s.382(1); it is thus realised by discharge from bankruptcy: s.281(1); but discharge does not affect the right of secured creditor to enforce security for payment of a debt from which the bankrupt is released: s.281(2)

Question 26

Insolvency Rules 1986, r.4.95-9

Answer 26

Proof by secured debtors:

• he may prove for the balance of his debt, after deducing the amount realised by security r.4.88(1)
• may voluntarily surrender security for the general benefit of creditors and prove as unsecured r.4.88(1)
• may value security and prove for unsecured balance

N.B. A secured debt is a “bankruptcy debt” even though it is not provable: s.382(1); it is thus realised by discharge from bankruptcy: s.281(1); but discharge does not affect the right of secured creditor to enforce security for payment of a debt from which the bankrupt is released: s.281(2)

Question 27

Non-provable debts

Answer 27

(a) in bankruptcy: fines and family proceeding orders (except orders to pay lump sums): r.12.3(2)(a)
(b) in bankruptcy and winding up: confiscation orders: r.12.3(2)(b)
(c) in bankruptcy and winding up: other non-provable debts: r.12.3(3)

N.B. fines, family proceedings orders (including lump sum orders) and confiscation orders are not related by discharge from bankruptcy

Question 28

Student loans

Answer 28

Liability in respect of a student loan “shall not be included in a person’s bankruptcy debts”: Education (Student Support) Regulations 2006 SI 2006/119 reg 72(1)(b)
This is designed to make sure liability is no provable and hence not released by discharge