Accounting for future debts, interest and unproved creditors


Part 4 Accounting for future debts,  interest and unproved creditors

36A.48 Debt payable in the future
A creditor may prove for a debt where payment would have become due at a date later than the insolvency proceedings[note 1], and it is only because the company or individual has entered into insolvency proceedings that the debt is claimed by the creditor in advance of its due payment date.  Where this occurs, the creditor is entitled to the dividend equally with others but, solely for the purpose of the dividend, the amount of the creditor’s proof (or, if a distribution has been made to him/her, the amount outstanding in respect of his/her admitted proof) shall be reduced by applying the following formula:

X divided by 1.05n

Where X is the value of the admitted proof and "n" is the period beginning with the relevant insolvency date [note 2] and ending with the date on which payment of the creditors debt would otherwise be due expressed in years and months in a decimalised form [note 3].


An example of this calculation is as follows:

  1. Mr A purchases a suite of furniture costing £3,500 on 1 September 2009, for immediate delivery.  He pays a £500 deposit and signs a contract requiring him to make no further payments for two years.
  2. The contract states the remaining £3,000 becomes due and payable on 1 September 2011, and can be paid interest free as a lump sum at that date or via 10 monthly payment instalments of £300 commencing on that date. 
  3. Subsequent to signing this contract Mr A is declared bankrupt on 1 February 2010, over a year before his contracted future payment of £3,000 becomes due.
  4. To calculate the amount by which the creditor’s proof should be reduced for dividend purposes using the above formula, firstly the period should be worked out between 1 February 2010 (the insolvency date) and 1 September 2011 (the future payment date).
  5. In this example this constitutes 1 year and 7 months.  This should be turned into decimalised form (19 months divided by 12 months), which is 1.58.  
  6. 1.05 to the power of 1.58 = 1.0801
  7. The calculation would then be:


£3,000 divided by 1.0801 = £2,916.40

The creditor is therefore entitled to prove for dividend purposes for a reduced amount of £2,916.40 against his/her future debt,  following this calculation.


36A.49 Creditors’ entitlement to interest

(amended June 2010)

(a) Statutory interest

Creditors who are due interest on their debts are not entitled to interest from any surplus fundsfunds (interest which accrues on debts outstanding since the date of the winding-up order or bankruptcy order until the date the debts are paid[note 10][note 11]), until any creditor who has a debt payable at a future time has been paid the full amount of his/her debt (see paragraph 36A.48 for information on future debts).   

The rate of interest payable is whichever is the greater of:

i) The rate specified in section 17 of the Judgments Act 1838(JA1838) on the day the order was made (currently this stands at 8%);and  

ii) The rate applicable to that debt apart from the winding up or bankruptcy (contractual interest) [Note 8][Note 8a].

(b) Interest due on debts for periods up to the date of the insolvency order 

In certain circumstances creditors may include interest accumulated on their debt for periods prior to the insolvency order although not previously reserved or agreed [note 4][note 4a], where a debt is due by written instrument and payable at a certain time. Interest may be claimed for the period from that specified time to the date of the insolvency order [note 5][note 5a].

For all other claims, interest may only be claimed if,  prior to the presentation of the petition a written demand for payment was made by or on behalf of the creditor, giving notice that interest would be payable from the date of the demand to the date of payment [note 6][note 6a]. Interest claimed for periods up to the date of the insolvency order can only be claimed for the period between the date of the demand and the date of the insolvency order [note 7][note 7a], and the maximum rate of interest chargeable is the rate specified in section 17 of JA1838 at the date of the insolvency order (currently 8%)[note 9][note 9a].


36A.50 Payment of statutory interest (no deferred creditors)

Where the official receiver is handling a case with substantial assets and there are no deferred creditors, after the payment in full of all the known proved creditors, statutory interest may then be paid to those creditors [note 10] [note 11]. If there is a surplus remaining in liquidations,  with the court’s sanction [note 12] it may then be distributed to the members of the company according to their adjusted entitlement [note 13]. Where there is a surplus in bankruptcy cases it is paid to the (former) bankrupt [note 14] (see also Part 8 of this chapter).   


36A.51 Payment of statutory interest (deferred creditors)

Where there are deferred creditors, following payment in full of ordinary unsecured (proved) creditors, including statutory interest (as detailed in paragraph 36A.48), remaining funds should be used to pay (proved) deferred creditors (if any) and statutory interest on those claims. After this any surplus funds may be paid to the members of the company in liquidation or the (former) bankrupt, as appropriate. See also 36A.51 regarding advising unproved creditors of the payment of statutory interest and return of surplus funds to the members or former bankrupt. 


36A.52 Defining payment in full to allow final distribution of surplus funds

The decision in the case of Gill v Quinn [2005] BPIR 129 hinders a bankrupt in obtaining an annulment of the bankruptcy order on the payment in full grounds when not all of the creditors can be paid (refer to Chapter 6A paragraph 6A.34 onwards).  Following this decision this means that a handful of known but unproved creditors’ claims can not only prevent the payment of statutory interest to proved creditors but also prevent the members of the liquidated company from receiving the distribution to which they are entitled or the (former) bankrupt from receiving a surplus. Creditors cannot be made to prove, they may choose to take no part in the insolvency proceedings (on economic grounds or for other reasons).  This can have the adverse effect that creditors will be treated unfairly in not receiving statutory interest. The members of the company or bankrupt will also be affected by not receiving a surplus. 

There is authority in the case of In Re Ward, Ex parte Hammond and Son v The Official Receiver and the Debtor [1942] Ch 294 to the effect that for the purposes of section 330(5), in the current legislation “creditors” means creditors who have proved in the bankruptcy. This case may be used as the authority to overcome the problem of defining when payment in full has occurred, to enable payment of statutory interest to creditors and repayment of any surplus.


36A.53 Treatment of creditors not proving in surplus bankruptcy cases

Where the official receiver is dealing with a distribution of surplus funds and is experiencing difficulty with creditors who have not proved, he/she should ensure that these creditors are included in all steps up to and including the issue of the notice of intended dividend (form DVDL). Where a dividend of 100p in the £ is expected, and prior to the declaration of a dividend, the appropriate steps to include the unproved creditors in the distribution have been taken correctly by issuing individual notices to unproved creditors to prove their claims,  and gazetting the intended dividend payment (further advertising is discretionary), the official receiver should consider that as being a payment in full and meeting the pre-condition to pay statutory interest [note 10] [note 15]. Where the official receiver expects the rate of dividend to reach 100p in the £, by issuing the notice of intended dividend (form DVDL), he/she is informing creditors who have not proved that continued failure to do so will mean they do not participate in the dividend.  Form DVDL also advises that any remaining funds will be used to pay statutory interest to those creditors who have proved, and any surplus then remaining will be paid to the members of the company in liquidation or (former) bankrupt, as appropriate. See Chapter 6A paragraph 6A.81 for further information concerning the payment of statutory interest.

Refer to Part 3 paragraph 36A.36 regarding proofs received after a dividend has been declared and paragraph 36A.39 where there is a credit balance and limited information  available, where the official receiver’s records have been destroyed and there is no creditor information on LOIS.


36A.54 Distribution of property in specie (division of unsaleable property)

When dealing with property which, because of its peculiar nature or other special circumstances,  cannot readily or advantageously be sold, the trustee may make a distribution in specie (in its existing form and essence and not in its equivalent) amongst the bankrupt’s creditors, according to the estimated value of the property. The prior permission of the creditors’ committee is required [note 16]. Any permission must relate to a specific proposed exercise of power and must not be given generally [note 17]. The official receiver,  when acting as trustee in such cases,  will need to obtain the prior consent of Technical Section (acting on behalf of the Secretary of State) before acting in this way. Where prior permission was not obtained and the property has been distributed, subsequent ratification may be granted by the creditors’ committee if it appears that the circumstances were urgent and that the trustee did not delay unduly in seeking ratification [note 18].This is unlikely to apply in cases administered by the official receiver.

[Back to Part 3 Problems in paying dividends][On to Part 5 Final distribution and application of assets in company liquidation cases]