Provable debt meaning

Snoozebox Ltd v Health and Safety Executive and another [2023] EWHC 851 (Ch) What are the practical implications of this case? The immediate takeaway is that, where uncertainty exists, creditors should lodge a proof in a CVA upon receiving notice, or at the very least engage with the CVA nominees ahead of the vote. The central difficulty for the Crown—HSE being treated as its emanation—was its non-participation in the CVA. As its inquiries had not concluded at that stage, it is unsurprising the HSE did not regard the contingent liability as sufficiently concrete to justify taking part. Indeed, attempting to quantify a prospective fine before any inquest would appear counter-intuitive to most prosecutors. Set against that, the judgment underscores the expansive modern scope of provable contingent debts, particularly following Re Nortel GmbH [2013] UKSC 52. The more thought-provoking point raised is a normative one. It is suggested that the case exposes an unwarranted distinction between corporate and individual offenders. Fines imposed over...

Banking & Finance—December 2023 and January 2024 case round-up The Joint Administrators of Lehman Brothers Holdings plc (In Administration) v LB GP No 1 Ltd (In Liquidation) and others [2023] EWHC 3056 (Ch) Intercreditor—ranking of statutory interest on subordinated debt The High Court examined whether statutory interest owed to a subordinated creditor should be met before principal due to another subordinated creditor sitting lower in the payment waterfall. This required construing the contractual priority provisions and how they interact with IR 14.23, which regulates the payment of interest. The court held that statutory interest due to the higher-ranking subordinated creditor must be paid ahead of principal payable to the lower-ranking subordinated creditor. The judge noted that, when provable debts are in competition, priority turns on the parties’ contractual arrangements, in particular the subordination terms governing the junior claim. IR 14.23(7) does not override such arrangements and falls to be read subject to the contractual subordination. The wording “liabilities in respect of the Notes” was interpreted broadly...

This Practice Note outlines: the principal corporation tax consequences when a UK‑incorporated company enters administration in the UK; and certain other tax considerations that may arise during the course of the administration Administration is a highly adaptable procedure and has become a popular means of addressing, and in many instances rescuing, insolvent businesses. It provides breathing space to enable a rescue or a restructure, or to achieve a better outcome for all creditors than would be possible on liquidation. Administration is an entirely statutory process. When reforms were introduced by the Enterprise Act 2002 (EnA 2002), inserting Schedule B1 into the Insolvency Act 1986 (IA 1986) for administration, HMRC also brought in specific tax rules to cover certain matters, although these are not comprehensive. For fuller discussion of the administration process, see: Administration—overview and, below: What is an administration and what is its purpose? From a tax perspective, the implications of administration can be far‑reaching, and without careful consideration there...

Provable debts The starting point for what counts as a provable debt in administration, winding-up and bankruptcy is Insolvency (England and Wales) Rules 2016 (IR 2016), SI 2016/1024, r 14.2(1). In essence, save where the rule provides otherwise, all creditor claims are provable against the company or the bankrupt, whether due now or in the future, fixed or contingent, quantified or recoverable only as damages. This sits alongside section 322 of the Insolvency Act 1986 (IA 1986) on proof of debts in bankruptcy, and IA 1986, s 382, which sets out what constitutes a bankruptcy debt. It should also be considered with IR 2016, SI 2016/1024, r 14.1, which defines “debt”, “small debt” and “liability”. Read together, these provisions supply the statutory framework for identifying debts and determining which debts are provable across different insolvency processes. An office-holder may, for dividend purposes only, treat small debts—currently £1,000 or less—as proved without the creditor actually lodging a proof. However, it is apparent from Re Nortel GmbH that an expansive view...

Insolvent estate An estate is insolvent where, once all assets are realised, there is not enough to discharge in full every debt and other liability attached to the estate. An estate is not treated as insolvent if the debts and liabilities can be settled even though no legacies are payable. If an estate proves insolvent, the beneficiaries named in the Will, or those entitled on intestacy, will receive nothing, and not all creditors will be paid in full. Personal representatives (PRs) must satisfy creditors in the prescribed order, or risk personal liability for any unpaid higher‑ranking debts. Where there is any possibility of insolvency, PRs must follow the prescribed sequence before paying any debts or liabilities. For an overview and more detail on insolvent estates, including the insolvency test and administration methods, see Practice Note: Insolvent estates and bankrupt beneficiaries. The Law Society has issued guidance on administering an insolvent estate. The statutory order requires that the expenses, debts and other liabilities of an insolvent estate are...

The nature of joint and several liability As outlined in the Practice Note on joint, several, and joint and several liability, joint and several liability arises when two or more parties to the same contract give a promise to the same person, while, at the same time, each of them separately makes that identical promise to that same person, within the same contractual arrangement...

Insolvency Rules 2016 (IR 2016), SI 2016/1024, Part 14 Part 14 of the Insolvency Rules 2016 (SI 2016/1024), which sets out how creditors’ claims are dealt with, also operates in a members’ voluntary liquidation (MVL) by reason of r 14.1(1). That rule confirms that this Part applies to administration, winding up and bankruptcy proceedings, without any restriction confining its operation to insolvent liquidations. What amounts to a provable debt in a winding up (and equally in administration and bankruptcy) is defined by r 14.2(1). Save as otherwise provided in that rule, every creditor’s claim is provable as a debt against the company or the bankrupt, whether the liability is present or future, certain or contingent, ascertained or recoverable only in damages. For further guidance, see Practice Note: Future debts, contingent debts, secured debts...