How to File a Proof of Debt Against a Company in Liquidation
The process of liquidation determines whether and how much of the debt will be paid to the creditors. In many instances, creditors will be very interested to learn how liquidation is to be carried out and how their claims can be accounted for.
This process is important to them, as the company will dissolve and cease to exist once the process of liquidation is carried out.
This article will cover the process in which the creditors of the company will lodge their claims of debt against a company in liquidation, and how such creditors are to be paid, in particular:
- The liquidation process
- Who is a creditor?
- What is a proof of debt?
- What kind of debt can be proved?
- Preparing the proof of debt form
- When can you file a proof of debt?
- How to file a proof of debt
- What happens after filing a proof of debt
- Whether a proof of debt ensures payment by the company undergoing liquidation
- What to do if you have enquiries regarding the liquidation process
What is liquidation?
Liquidation is a process that happens during the winding up of the company.
During liquidation, the assets of the company are “liquidated” (converted into cash) to pay off any existing debts and liabilities.
Types of winding up
There are 2 different types of winding up that leads to liquidation:
- Voluntary winding up, by the company itself (through its members), or the company’s creditors.
- Involuntary winding up, by the court. A creditor who is not yet paid has the right to make an application to the court for the company to be wound up. Other relevant persons who may make an application for an involuntary winding up include the company itself and the liquidator.
Appointing a liquidator
A liquidator will be appointed once it is decided that the company will be wound up. A liquidator is a person who is specially appointed and is given legal authority to wind up the affairs of the company.
He does so by selling the company’s existing cash assets to repay the debts, settle liabilities and distribute the leftovers to the company’s shareholders.
A liquidator can be appointed in the following ways, depending on the type of winding up the company is undergoing:
- For involuntary winding up, either a licensed insolvency practitioner or a public officer known as the Official Receiver will be appointed by the court to oversee the liquidation of the company.
- For creditors’ voluntary winding up, the creditors may choose the liquidator that they wish to appoint.
- For members’ voluntary winding up, the shareholders can appoint a liquidator in a general meeting.
Where the liquidator is privately appointed (as is the case in a creditors’ voluntary winding up or a members’ voluntary winding up), the Official Receiver will act as a regulator to ensure that the private liquidator is acting in accordance with Singapore’s insolvency laws.
Who is a Creditor?
A creditor is normally defined as a party who has provided money, goods or services to a company and expects to be paid at a later date.
As a creditor, your main goal would be to recover your debt from the company. In order to recover your debt, you would first have to prove that such a debt exists between you and the company by filing a proof of debt.
What is a Proof of Debt?
A proof of debt is essentially a documentary declaration made by the creditor, which establishes proof of the debt that the company owes them.
A typical proof of debt form will ask for the following details:
- Name of the company that the creditor is lodging a claim against;
- Particulars of the creditor claiming the debt;
- Particulars of how the debt came into existence;
- Details of the debt;
- Particulars of any interest imposed on debt or late payment charge, if applicable;
- Whether the creditor holds any security with the company;
- Particulars of persons authorised to complete the proof of debt form; and
- The signature of the creditor or persons authorised to complete the proof of debt form.
What Kind of Debt Can be Proved?
Regardless of the type of winding up the company is facing, all debts and claims against the company, whether they are present or future debts, or certain or contingent, may be proved against the company.
Creditors can also file such a proof of debt even if their debt hasn’t become due to them on the day of filing. In fact, any creditor who wishes to recover their debt owed to them by a company under liquidation is required to submit a proof of debt unless a judge has ordered otherwise.
Preparing the Proof of Debt Form
Under the Insolvency, Restructuring and Dissolution Act regulations, the type of proof of debt form that a creditor may have to fill in depends on the type of winding up a company is going through.
- If the company is being wound up by order of court, a creditor will have to fill in Form CWU-1.
- If the company is being wound up voluntarily, a creditor will have to fill in Form VWU-11.
In either case, the creditor is required to submit supporting documents to validate his proof of debt. Examples of supporting documents include:
- Credit and debit notes;
- Vouchers; and
When Can You File a Proof of Debt?
The timing of when you can file a proof of debt is dependent on the type of winding up process being initiated.
For voluntary winding up, the liquidator can send a Notice to File Proof of Debt to the creditors and fix a date by which all creditors are to submit their proofs of debt. The notice will be made available:
- By advertisement in the Gazette and in at least 1 local English daily newspaper; and
- In writing to every person who, to the knowledge of the liquidator or Official Receiver, claims to be a creditor of the company.
Additionally, this notice will be given at least 14 days in advance of the deadline of submission. Creditors who fail to lodge their claim within 14 days of such a deadline will be excluded from being paid any dividend funds from the liquidation process.
For a court-ordered winding up, the liquidator will publish his intentions in the Government Gazette to liquidate the assets of the company and pay out the creditors.
In making such an announcement, the liquidator will also set a cut-off date (which must at least be 14 days after the making of such an announcement)in which creditors are to file their claims.
Creditors who fail to lodge their claim within this deadline will be excluded from being paid any dividends funds from the liquidation process.
What happens if I fail to file the proof of debt before the deadline?
If a creditor fails to file his proof of debt before their respective deadlines (either for the court-ordered winding up or the voluntary winding up), this does not mean that his claim will be completely extinguished.
Rather, the creditor will be excluded from only any distributions of the assets of the company to be made by the liquidator before he has proven his debt.
How to File a Proof of Debt
The method of filing the proof of debt depends on whether the liquidation is being handled by the Official Receiver or a private liquidator.
For liquidations administered by the Official Receiver
Where the liquidation is administered by the Official Receiver, creditors can submit their proof of debt and supporting documents online on the Insolvency Office’s E-Services platform via the “Proof of Debt for Company Liquidation” service.
As of 20 October 2020, the fee for making such an online submission of documents is $5.00.
For liquidations administered by a private liquidator
What Happens After a Proof of Debt is Filed?
The liquidator will examine the creditor’s proof of debt in order to determine whether he will accept the claim or reject it entirely, or in part. During this process, the liquidator may also reach out to the creditors if he or she needs more information to verify the proof of such debts.
In either a court-ordered winding up process or the voluntary winding up process, the liquidator has 14 days, from the last day for lodging proofs as mentioned in the Notice to File Proof of Debt, to make an assessment on whether to accept or reject the claim.
Where the creditor’s proof of debt has been accepted, the liquidator will issue a notice of dividend in which he will state the percentage of dividend payable and the amount of dividend payable to each creditor. This notice is sufficient proof that a creditor’s claim has been accepted.
However, if the creditor’s proof of debt is rejected, the liquidator will issue a notice — also known as the Notice of Rejection — to inform the creditor as to the reasons on why he rejected the creditor’s claim. If the creditor wishes to appeal the decision, the creditor then has to lodge an appeal within 7 days of the date of the Notice of Rejection.
Will Proof of Debt Ensure Payment by the Company Undergoing Liquidation?
Whether a debt will be repaid depends very much on whether the company has leftover assets and whether you are a secured, unsecured or preferential creditor.
Therefore, successfully submitting and filing your proof of debt with the liquidator does not guarantee that your debt will be paid by the company. In fact, the law has set out a certain priority when it comes to settling a company’s liabilities upon winding up.
Secured creditors are creditors who usually hold rights over the company’s property and/or goods as a security for the payment of debt. Security can be in any form of asset provided by the debtor. It ensures that the creditor receives repayment through the asset in case the debtor fails to repay his debt on time.
Secured creditors are entitled to claim their security in repayment of the debt owed to him regardless of the liquidation process. It is only if the security is inadequate to repay the debt that they have to prove as unsecured creditors for the remaining balance.
Preferential creditors are unsecured creditors whose debts have been granted priority by the law.
Examples of preferential creditors are:
- Employees of the company;
- The CPF Board; and
- The Inland Revenue Authority of Singapore.
Unsecured creditors are creditors who did not receive any security for their financing. They will be paid last from what is left over after distributions are made to the preferential and secured creditors.
What Do I Do If I have Inquiries Regarding the Liquidation Process?
As seen from the article above, the liquidator is the party that is primarily responsible for ensuring that creditors are paid during the liquidation process.
Therefore, creditors with inquiries on the liquidation process should as far as possible approach their liquidator (or the Official Receiver, as the case may be) to have their inquiries addressed.
Regardless, any conduct of a liquidator comes under the purview of the Official Receiver. Therefore, if you feel that a private liquidator has not performed his duties diligently or as required by law, you may file a complaint with the Official Receiver who may then investigate the liquidator’s conduct.
A liquidator may also be removed or replaced by the court if it is convinced that the liquidator should be dismissed for some reason.
The filing of a proof of debt claim is an important process to ensure that you have a decent chance of getting your debts repaid during a company’s liquidation.
Missing the deadlines or not submitting the appropriate documents to validate your proof may result in serious consequences, including facing the prospect of recovering no monies from the liquidated company at all.
It is therefore recommended that you appoint a qualified lawyer to assist you should you need to file a proof of debt in Singapore.
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