Insolvency can be a stressful time for everyone involved. It’s not just challenging for the individual or business facing financial difficulties; creditors owed money often have many questions too. What happens to the debt? Will I get any money back? Do I have a say?
Understanding your rights as a creditor can help you make informed decisions and protect your interests.
You\’re entitled to be informed
When a debtor enters insolvency, whether that’s bankruptcy, a company liquidation, or an Individual Voluntary Arrangement (IVA), creditors must be informed. You’ll usually receive a formal notice outlining the process, the appointed insolvency practitioner, and what’s likely to happen next.
You have the right to receive information on the debtor’s financial situation, the reasons for the insolvency, and the likely return to creditors (if any). Transparency is key, and insolvency practitioners are legally required to keep creditors updated at each stage of the process.
You can submit a claim
Creditors have the right to submit a claim for the amount they’re owed. This is known as proving your debt. It typically involves filling out a proof of debt form and providing evidence such as invoices, statements, or contracts.
The insolvency practitioner will review your claim and decide whether it’s accepted. If funds are available, creditors are paid from whatever assets can be recovered. It’s important to note that payment is rarely full or immediate. There’s often a queue, and some creditors, like employees or HMRC, may be prioritised.
You can vote on proposals
In some insolvency processes, particularly IVAs and Company Voluntary Arrangements (CVAs), creditors may be asked to vote on proposals. These outline how the debtor intends to repay the money they owe, usually over a fixed period.
As a creditor, your vote can influence whether the proposal is accepted. If you’re a major creditor, your input may carry significant weight. This is your opportunity to have a say in how the debt is managed and whether the proposal seems realistic.
You have legal protection
Creditors also benefit from certain legal protections. Once a formal insolvency process begins, creditors are generally prevented from taking individual legal action or chasing payment outside of the agreed process. This helps ensure fair treatment for all parties and prevents one creditor gaining at the expense of others.
In some cases, you may also have the right to challenge the conduct of the debtor or the insolvency practitioner, for example if you suspect misconduct or unfair treatment.
Getting the right support
If you’re unsure where you stand as a creditor, it’s always wise to seek professional advice. Whether you\’re owed money by a customer, client or company, understanding your rights can help you respond appropriately and recover as much as possible.
At Adcroft Ltd, we offer impartial guidance on all aspects of debt and insolvency, including creditor rights. If you\’re affected by someone else\’s insolvency and need advice, get in touch with our team for clear, confidential support.
