Darren Toombs, partner at Carson McDowell, provides an update on the bankruptcy court as it reopens to bankruptcy petitions from creditors – albeit at an additional cost to businesses and commercial creditors – while petitions for liquidation of companies remain in limbo.
As we begin a new judicial term, it is interesting to see where our bankruptcy court is at, on the road back to normal court operations and particularly as the cost of living crisis hits hard.
Recent guidelines issued by the Bankruptcy Master on August 19 appear to leave non-Crown creditors, the normal commercial creditors for you and me, in a slightly worse (and certainly more costly) position than Crown creditors, when is about taking insolvency action against individuals. personal debtors.
From Monday, September 5, bankruptcy applications from (non-Crown) creditors, who meet the criteria set out below, may be presented to court for a hearing date:
- Petition debt is based on a court order, decree or other court order. The relevant court order MUST accompany the motion for verification by court staff when filing the motion; AND
- The motion is based on a demand letter dated and served on or after June 1, 2022.
Alternatively, creditors’ (Crown) bankruptcy petitions, typically petitions issued by HMRC for non-payment of tax, may also be made from Monday 5 September 2022, and will be accepted on the same basis. than before the pandemic. .
From these guidelines, HMRC will not have to take the additional and potentially costly step of first obtaining a judgment against the debtor. Business and commercial creditors will, in the first instance, be required to go to the Magistrate’s Court or the High Court and obtain a judgment. In the best-case scenario, and with the most diligent lawyer on the case, this will delay the process between six weeks and two months given the additional work and administration required and judgment processing time even after the filing of documents. This process seems to be necessary even when there is no dispute over the debt and when the debt is clearly already a liquidated sum.
Bankruptcy petitions open insolvency proceedings only against individual personal debtors. To initiate insolvency proceedings against debtor companies, a creditor must file a petition for liquidation.
In the latest guidelines issued by the bankruptcy court, practitioners felt uncertain about a future timeline for a return to business. The courts have retained a restriction on the submission of liquidation petitions by creditors and the brief guidance note simply states that advice on such cases has been postponed until the new proposed permanent moratorium rules come into force. Without an executive sitting in Stormont, when could that be?
This position seems to be explained by the fact that companies in Northern Ireland are at a disadvantage compared to other UK-based limited liability companies, in that they no longer benefit from the same protection as companies in England, Wales and Scotland, as they cannot benefit from the permanent moratorium proceedings introduced by the Insolvency and Corporate Governance Act in view of the non-implementation of the new rules of insolvency for Northern Ireland which had not been implemented before the collapse of Stormont.
There is, however, currently in the ‘creditor community’ a view that some companies are abusing the situation and continuing to trade insolvent with large unpaid judgments filed against them.
If the court follows the logic of recent personal insolvency guidelines when opening the court door to liquidating petitions, it would appear that commercial creditors should take steps to obtain judgments against errant debtors and work to negotiate settlements with debtors ready to make significant commitments.