How to File a Proof of Debt against a Company in Liquidation
The Liquidation Process
What is liquidation?
Liquidation is a process to distribute the assets of a company to pay off its debt and liabilities. This process occurs as part of the winding up of a company. It is during liquidation that creditors should be most concerned about the debt owed to them.
This is because the liquidation process will determine whether and how much of the debt will be paid to the creditors. Once liquidation is completed, the company dissolves and ceases to exist.
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
Once it has been determined that the company would be wound up, a liquidator will be appointed. The liquidator’s main responsibility is to ensure that the leftover assets of the company are distributed justly among the creditors and shareholders.
The liquidator to be appointed will be determined by either the company, creditors or the court depending on the type of winding up the company is undergoing:
- For involuntary winding up, 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, the Official Receiver will act as a regulator to ensure that the private liquidator is performing his duties and complying with Singapore’s the insolvency laws.
(In this article, the word “liquidator” will refer to either the Official Receiver or the private liquidator, depending on the type of winding up that the company is undergoing.)
Who is a creditor?
Generally, if you have provided finance (cash advance/postponed a payment) in exchange for a promise to receive the payment at a future date, you are a creditor.
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 the the company and you by filing a proof of debt.
What is a Proof of Debt?
A “proof of debt” is a statutory declaration by the creditor of a statement of account, showing the proof of the debt owed to them by the company with supporting documents, validating the debt.
What kind of debt can be proved?
Regardless of whether the company is facing a voluntary or involuntary winding up, all debts and claims against the company that are present or future, certain or contingent, may be proved against the company.
Creditors may also file a proof of their debt regardless of whether the debt is due on the date of filing.
In fact, unsecured creditors who wish to recover their debt owed to them by a company that is under involuntary winding up, must submit a proof of their debt unless a judge has directed otherwise.
For secured creditors, they need not prove their debts and may proceed to realise their security to satisfy their debt.
Preparing the Proof of Debt
Generally, when claiming a debt against an insolvent company, a creditor has to submit proof of his or her debt by filling in Form 77 under the Second Schedule of the Companies Regulations to the liquidator.
It requires the creditor to submit a just estimate of the value of the debt along with supporting documents such as invoices or judgments where relevant.
Examples of supporting documents are:
- Credit and debit notes
The supporting documents for the proof of debt must also be sent to the Official Receiver within 14 days from the submission of Form 77. Proofs of debt that are submitted without supporting documents may be rejected.
When Can You File the Proof of Debt?
It is also very important to note when you can file the proof of debt.
Generally, the proof of debt can be filed once the company is in liquidation. For a company that is being wound up by the court, the proof of debt must be filed within 3 months after the winding up order is made.
In addition, the liquidator can send a Notice to File Proof of Debt, setting a date in which all creditors are to submit their proofs of debt. The notice will be made available:
- By advertisement in the Gazette and in the 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.
This notice will be made at least 14 days in advance of the deadline of submission.
What if I fail to file the proof of debt before the deadline?
The failure to file the proof of debt before the deadline does not mean that the creditor’s debt is extinguished. The creditor will only be excluded from any distributions of the assets of the company made by the liquidator if he has not proven his debt yet.
As long as the company has yet to be dissolved and there are assets yet to be distributed, the creditor can still prove his debt and claim from subsequent distributions.
How to File the 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 Official Receiver
Proofs of debt for liquidations administered by the Official Receiver can be filed online or manually.
Online submissions may be made to the Ministry of Law’s Insolvency Office via the “Proof of Debt for Company Liquidation (Form 77)” option on its E-service platform. The fee for making an online submission, as of 14 Oct 2019, is S$5.00.
Alternatively, manual submissions may be submitted to the Insolvency Office directly. The fee for making a manual submission, as of 14 Oct 2019, is S$8.00. This is payable via cash directly at the Insolvency Office or at a SAM machine.
For liquidations administered by private liquidator
If the liquidation is being administered by a private liquidator, the private liquidator will inform you when and how you may submit your proofs of debt. You should therefore contact them directly about this.
What Happens After the Proof of Debt is Filed?
After the proof of debt is filed, the liquidator will examine the proof of debt and the grounds of the debt to determine whether to accept or reject it in its entirety or in part.
The liquidator will make his decision known within 14 days from the last day for lodging proofs as mentioned in the the Notice to File Proof of Debt. If insufficient information was given in a creditor’s proof of debt, the liquidator may request for more information or evidence as well.
Creditors who have had their proofs of debt accepted and admitted will receive a notice of this decision from the liquidator in writing.
If a creditor’s proof of debt is improperly/wrongly admitted, the liquidator may apply to the court to remove the proof or reduce the amount of debt. It is therefore important to submit the proof of debt in the proper form with the right supporting documents, following the proper procedure and deadline.
If a creditor’s proof of debt claim is rejected, the liquidator will let the creditor know of his or her reasons in writing.The creditor can still appeal to the court against the liquidator’s decision. The appeal must be made within 21 days from the date which the notice of the rejection was served upon the creditor.
Will Proof of Debt Ensure Payment by the Company?
Even if your proof of debt is successfully submitted and accepted, it does not guarantee that your debt will be paid by the company. Whether a debt will be paid depends on whether the company has any leftover assets and whether you are a secured, preferential or unsecured creditor. The law has set out a certain priority when it comes to settling creditors’ claims.
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 realise their security 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 are to be paid in priority and in order of ranking according to section 328 of the Companies Act.
Examples of preferential creditors are:
- Employees of the company,
- CPF Board; and
- The Comptroller of Tax.
Preferential creditors rank second in priority for debt repayment as they are a special class of unsecured creditors granted priority by the law.
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.
However, if the company runs out of assets to repay the unsecured creditors after paying the secured creditors and preferential creditors, the unsecured creditors will not get paid.
Who Do I Contact If I Have Inquiries Regarding the Liquidation Progress?
As a creditor, the main person of correspondence would be the liquidator should you have any question or require information regarding the process of liquidation of the company.
In the event that you believe that a private liquidator is not performing his duties diligently or as per required by the law, you may make a complaint to the Official Receiver. The Official Receiver has the right to launch an investigation and inquiry into the matter.
As the filing of proofs of debts consists of multiple deadlines and procedures, the process may seem daunting. It is therefore recommended that a qualified lawyer is appointed to assist you, should you need to file a proof of debt.
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