What Should a Creditor Do When a Company Becomes Insolvent?

Last updated on October 22, 2020

You are a creditor of a company which is unable to pay its debt, or which had already gone into insolvency. What should you do to recover your debt? This article sets out the steps to take to recover debts from your debtor company.

If the Company is Still Solvent

You may petition to wind it up to realise your debts. You can achieve this by submitting a winding up petition either through a:

  • Creditor’s winding up: a company may decide to opt for a creditors’ voluntary winding up if its directors believe that it cannot, by reason of its liabilities, continue its business. After the management initiated the winding up, you (and other creditors) have the right to approve the resolution for winding up and have control over the process of liquidation.
  • Compulsory winding up: the creditors of the company decide to apply for a winding up of the business because the insolvent company’s management is unwilling to wind up its business or there is a high risk of dissipation of the company’s assets.

How to Initiate a Compulsory Winding Up

To initiate a compulsory winding up, you must first be a creditor (including contingent or prospective creditors) of the company. Second, you must establish that the company is unable to pay its debts.

There are 3 ways to prove a company’s insolvency:

  1. The company failed to pay a certain sum exceeding $10,000 within 3 weeks of a statutory demand for this sum being served to the company’s registered address;
  2. Execution of a judgment in favour of you has yet to be paid; or
  3. The company cannot meet its liability on short notice or that there is a deficit of its liabilities against its assets.

If the Company is Already Insolvent

If the company has already gone into insolvency, you will need to submit proof of your debt (i.e. a “proof of debt”) to the company. However, there is no guarantee that you can retrieve the full debt owed as there are any creditors like you claiming against the insolvent company.

What is a Proof of Debt?

All claims in insolvent liquidation are provable against the insolvent company. If your claim is not provable, you will not receive payment.

After the company goes into liquidation, the liquidator will write to you and advertise the liquidation. Then, you will need to file proof of debt within 3 months after the winding up order is made. Present debt, future debt (debt which will certainly become due in future) or contingent debt (debt which will materialise out of an existing legal obligation on an event which may or may not occur) as at liquidation date or interests up to the liquidation date are all provable.

The liquidator will then examine and adjudicate on all proofs of debt received, – and will admit, reject or require more evidence with regard to these proofs.

If your claim is rejected, you may appeal to court. If more evidence is required and you fail to provide it to the satisfaction of the liquidator, your claim may thereby be rejected or downsized.

Read more about how to file a proof of debt here.

Effect of Winding Up

Once the court makes a winding up order, you cannot institute or continue any legal proceedings against the company without the permission from the court. This is to facilitate an equal and organised distribution of the insolvent company’s assets amongst the unsecured creditors.

Permission from the court to pursue an action against the insolvent company may be granted to:

  1. To repossess one’s own property; or
  2. To exercise a remedy over the company’s property (an example will be a landlord creditor seeking to seize property in default of rent payment).

Secured creditors are not affected by this stay and are free to claim assets which are secured to their debts.

If You Need to Recover Debts from a Company

A debt recovery lawyer can advise you on steps to take to secure your position as a secured creditor through proper drafting. They can also advise you on the steps to take as an unsecured creditor.

When a company goes insolvent, it makes a huge difference whether you are a secured or unsecured creditor. If you are a secured creditor, you need not worry about not being able to recover your debt as it will be encumbered to the company’s asset, and your interest in that asset will not be divested even in insolvency.

To this end, consulting a lawyer prior to a high risk investment might help to mitigate some insolvency risk involved in the transaction.

Appointment and Removal of Company Officers and Other Key Personnel
  1. Appointing Company Directors in Singapore: Eligibility, Process etc.
  2. Managing Director vs CEO in Singapore: Roles and Obligations
  3. Guide to Directors' Remuneration in Singapore
  4. Directors' Duties in Singapore
  5. Shadow Directors: Who are They and What Duties Do They Owe to the Company?
  6. How to Remove a Director from a Company in Singapore
  7. Removal and Resignation of Company Auditor in Singapore
  8. Appointing a Company Secretary: Roles and Responsibilities
  9. Appointing an Authorised Representative for Foreign Companies in Singapore
  10. Process Agents in Singapore
Holding Meetings
  1. What are Annual General Meetings (AGMs) in Singapore?
  2. How to Hold Extraordinary General Meetings (EGMs) in Singapore
  3. How to Hold a Board Meeting in Singapore
Shareholder Matters
  1. 2 Ways to Remove a Singapore Company Shareholder ASAP
  2. Guide to Paid-Up Capital in Singapore (Is $1 Enough?)
  3. Preparing a Register of Shareholders for a Singapore Company
  4. How to Issue Shares in a Singapore Private Company
  5. Guide to Transferring Shares in a Singapore Private Company
  6. Your Guide to Share Certificates in Singapore: Usage and How to Prepare
  7. Shareholder Rights in Singapore Private Companies
  8. Shareholder Roles and Obligations in Singapore Companies
  9. Dividend Payments Guide for Singapore Business Owners
  10. Share Transmission: What Happens If a Shareholder Dies in Singapore?
  11. How to Reduce the Share Capital of Your Singapore Company
  12. Buy-Sell Agreements: How to Write & Fund Them in Singapore
  13. Oppression of Minority Shareholders
Compliance
  1. Essential Regulatory Compliance Guide for Singapore Companies
  2. Dormant Companies and Their Filing Obligations in Singapore
  3. Anti-Money Laundering Regulations and Your Business: What You Need to Know
  4. Price-Fixing, Bid-Rigging and Other Anti-Competitive Practices to Avoid
  5. Legally Conducting Lucky Draws for Singapore Businesses
  6. Restaurant Inspection and Food Safety Rules in Singapore
Company Management
  1. Does Your Company Need a Legal Team (In-House Counsel)?
  2. How to Change the Name of Your Singapore Company
  3. Can Directors be Liable for Company Debts in Singapore?
  4. Company Loans to Directors/Shareholders in Singapore
  5. 3 Types of Insurance Every Singapore Business Needs
  6. Creating and Registering Charges in Singapore: Guide for Companies
  7. Guide to Effective Business Continuity Planning in Singapore
  8. Business Asset Sale & Disposal in Singapore: How Do They Work?
  9. Business Partnership Disputes in Singapore: How to Resolve
  10. How to Commence a Derivative Action on Behalf of a Company in Singapore
  11. Business Will: How to Pass on Your Business to Your Successors in Singapore
Company Documents
  1. Record-Keeping Requirements for Singapore Companies
  2. Company Constitutions in Singapore and How to Draft One
  3. Company Memorandum and Articles of Association
  4. Company Resolutions: What are They?
  5. Board Resolutions in Singapore
  6. Minutes of Company Meeting in Singapore: How to Record
  7. How to Set Up a Register of Controllers
  8. How to Set Up a Register of Nominee Directors
  9. Guide to Filing Financial Statements for Singapore Business Owners
  10. Filing Annual Returns For Your Business
Tax, Accounting and Audit Matters
  1. Singapore Corporate Tax: How to Pay, Tax Rate, Exemptions
  2. Start-Up Tax Exemption Guide for New Singapore Companies
  3. GST Registration: Requirements and Procedure in Singapore
  4. What is Withholding Tax and When to Pay It in Singapore
  5. Singapore Influencers: Here's How to Calculate Your Income Tax
  6. Tax Investigation of Tax-Evading Business Owners in Singapore
  7. Small Business Accounting Services in Singapore
  8. Company Audits in Singapore: Requirements and Exemptions
Data Protection
  1. Suspect a PDPA Data Breach? Here's What to Do Next
  2. Must You Notify PDPC About a Data Breach in Your Business?
  3. Summary: Your Organisation's 10 Main PDPA Obligations
  4. Essential PDPA Compliance Guide for Singapore Businesses
  5. PDPA Consent Requirements: How Can Your Business Comply?
  6. Is It Legal for Businesses to Ask for Your NRIC in Singapore?
  7. Here's a 7-Step Plan for Companies to Prevent Unauthorised Disclosure When Processing and Sending Personal Data
  8. Cloud Storage of Personal Data: Your Business’ Data Protection Obligations
  9. Drafting a Comprehensive Privacy Policy For Your Singapore Website
  10. GDPR Compliance in Singapore: Is it Required and How to Comply
  11. Appointing a Data Protection Officer For Your Business: All You Need to Know
  12. How Can Companies Dispose of Documents Containing Personal Data?
  13. Check the Do-Not-Call Registry Before Marketing to Singapore Phone Numbers
  14. How to Legally Install CCTVs for Home/Business Use in Singapore
  15. Is Web Scraping or Crawling Legal in Singapore?
  16. Legal Options If Employees Breach Confidentiality in Singapore
Marketing
  1. Dealing with Defamation of Your Business: Can You Sue?
  2. Sending Email Newsletters That Comply With Singapore Law
  3. A legal guide to drafting a social media policy for your company
  4. Your Guide to a Media Release Form in Singapore
  5. Your Guide to an Influencer Marketing Agreement in Singapore
  6. Outdoor Advertising: How to Legally Display Public Ads in Singapore
Franchising
  1. Starting a Franchise in Singapore: What Franchisors Should Look Out For
  2. Running a Franchise in Singapore: What To Look Out for as a Franchisee
Debt Restructuring
  1. What is Judicial Management and How It Works in Singapore
  2. Schemes of Arrangement: How They Work and How to Apply
  3. Informal Debt Restructuring and Workout in Singapore
Ending a Business
  1. Voluntary Suspension of Business in Singapore: How to Handle
  2. Winding Up a Singapore Company: Grounds and Procedure
  3. Closing Your Singapore Business: What You Need to Settle
  4. Striking Off a Company
  5. Can a Company that Struck Itself Off the Register Later Apply to Restore Itself?
  6. Dissolution of partnerships in Singapore
  7. What Should a Creditor Do When a Company Becomes Insolvent?
  8. How to File a Proof of Debt Against a Company in Liquidation
  9. Insolvency: Claw-Back of Assets From Unfair Preference and Undervalued Transactions
  10. Validation of Payments Made by Companies Being Wound Up