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When a company becomes insolvent, it signifies that it is no longer able to meet its financial obligations, meaning it cannot pay its debts as they come due. If you are a creditor to such a company, understanding the implications of insolvency is crucial for determining the best course of action to recover the money owed to you.

Engaging with the insolvency process effectively and understanding your position within the hierarchy of creditors can significantly impact your chances of recovering your funds.

Annecto Legal helps creditors in finding the right litigation support, funding and insurance for their insolvency cases and asset recovery. Moreover, we help insolvency recovery teams to secure the best result for creditors in insolvency litigation.

The insolvency recovery process

If an insolvent company owes you money, the process to recover your business debt involves several steps, guided by UK insolvency law. Here is an overview of the process:

Identify the Insolvency Practitioner:

• Find out who the insolvency practitioner (IP) is. The IP will be responsible for managing the liquidation process. Their details can be found in the insolvency notice published by the company or through the Companies House. The insolvent limited company can be found in the insolvency register.

Submit your claim:

• Submit a formal claim to the IP to register as a creditor. This is usually done by filling out a proof of debt form, which details the amount owed and provides evidence of the debt. Include invoices, contracts, and any correspondence related to the debt.

Review reports:

• Review the reports provided by the IP. These reports will outline the company’s assets, liabilities, and the proposed plan for asset distribution.

Distribution of assets:

• If there are sufficient assets, the IP will distribute the proceeds according to the legal priority of claims to pay their debts. The order of priority is generally:
• Secured creditors
• Preferential creditors (such as employees)
• Unsecured creditors
• Shareholders

Realisation of assets:

• The IP will attempt to sell the company’s assets to raise funds to repay creditors. Secured and preferential creditors are paid first, and unsecured creditors often receive only a fraction of what they are owed.

Receive dividends:

• If any funds are available after paying higher-priority creditors, you may receive a dividend payment. The amount depends on the remaining assets and the total claims of unsecured creditors.

Funding and insurance options for insolvency and asset recovery cases

When pursuing insolvency litigation, legal costs can escalate quickly. Therefore, it is essential that parties are aware of the funding options that are available to them. Listed below are some of the cost-effective options for funding insolvency litigation:

Assignment

Some types of disputes can be assigned to a third party, usually for an upfront payment and a share of recoveries (after costs). This model can be useful on smaller cases when the ATE and CFA model would not deliver value. But giving up control can sometimes be costly, especially on larger disputes. Working with a broker can be an effective way to understand the options and evaluate the best course of action, as well as providing the insolvency with a written record of the process undertaken.

After the event insurance 

After the event (ATE) insurance is a type of insurance that can provide cover for legal costs in the event that a case is unsuccessful. This option can be particularly useful in cases where the outcome is uncertain, and the costs of losing a case could be significant. ATE insurance is often used with conditional fee agreements and contingency fee agreements. ATE can also be used to meet Security for Costs applications, sometimes sitting alongside a Deed of Indemnity. Feel free to make contact if you would like to understand more about insurance options and meeting a security for costs application in a cost effective fashion.

Third party litigation funding

In some cases, third party litigation funders may be willing to provide funding for an insolvency dispute claim in exchange for a share of any financial settlement or damages awarded. This option can be attractive when there are no funds to pay for legal fees, but the case is strong and there’s a good chance of making a recovery. There are scores of funders interested in insolvency disputes and they offer a multitude of different pricing models, often influenced by the risk profile. Annecto Legal is well placed to explain the different options and what could be available on any particular case. We can assist in preparing a case to present to funders, negotiating terms and providing a report on the process undertaken, to meet professional obligations.

An insolvent company owes me money; how can Annecto Legal assist?

At Annecto Legal, we have experience in advising and assisting on high profile insolvency and asset recovery matters. We help a wide range of clients in finding the appropriate funding, assignment options and law firms for insolvency cases and to help them recover assets. We can also provide assistance in cross border insolvency matters and offshore jurisdictions.

Annecto Legal regularly assists those looking to recover their debts from insolvent companies. If you are owed money and are in the process of pursuing a debt and want to find out whether we can assist in helping you fulfil your obligations and secure the right deal, then contact Annecto Legal now.