Unsecured Creditors

PART 6

March 2014

INTEREST 

40.153 Interest on debts – liquidation

Where a debt proved in the liquidation bears interest, that interest is provable as part of the debt except in so far as it is payable in respect of any period after the date that the company went into liquidation (or the date of administration where that immediately preceded the liquidation) [note 1] [note 2].

Where interest on the debt was not previously reserved or agreed and where the debt was due by virtue of a written instrument and payable at a certain time, interest may be claimed from that date to the date of liquidation (or the date of administration where that immediately preceded the liquidation) [note 3] [note 4].

Where the debt is due otherwise, interest may only be claimed if, before the date of the liquidation, a demand for payment of the debt was made in writing and notice given that interest would be payable from the date of demand [note 5].  In that case, interest may only be claimed for the period from the date of demand to the date of liquidation (or the date of administration where that immediately preceded the liquidation) [note 6].

Unless where previously agreed, the interest rate chargeable can be no more than that set in the legislation, currently 8% per annum [note 7] [note 8].

 

40.154 Interest on debts – bankruptcy

Where a debt proved in the bankruptcy bears interest, that interest is provable as part of the debt except in so far as it is payable in respect of any period after the date of the bankruptcy order [note 9] even where the interest was not previously reserved or agreed [note 10].

Where the debt was due by virtue of a written instrument and payable at a certain time, interest may be claimed from that date to the date of the bankruptcy order [note 11].

Where the debt is due otherwise, interest may only be claimed if, before the presentation of the bankruptcy petition, a demand for payment of the debt was made in writing and notice given that interest would be payable from the date of demand [note 12].  In that case, interest may only be claimed for the period from the date of demand to the date of the bankruptcy order [note 13].

Unless where previously agreed, the interest rate chargeable can be no more than that set in the legislation, currently 8% per annum [note 14] [note 15].

 

40.155 Interest on petition costs

The legislation provides a wide discretion to the court in the making of costs, including in relation to the hearing of a winding up or bankruptcy petition.  Where such a costs order is made on hearing the petition there is an entitlement to interest on those costs [note 16] [note 17].

 

40.156 Interest on trade debts

The legislation provides a right to claim interest on commercial (trade) debts for goods and services when payment is made after the agreed period, or after 30 days if no credit period has been agreed [note 18].

The interest rate currently chargeable is set at 8% above the Bank of England base rate [note 19].

Where the parties agree a contractual remedy for late payment of the debt, statutory interest is not applicable to the debt unless agreed otherwise [note 20].

 

40.157 Post-insolvency interest

Any surplus remaining on the estate after the payment of preferential debts (see Part 4) and ordinary unsecured creditors must be applied in paying interest on those debts that have been outstanding since the date that the company went into liquidation or the date of the bankruptcy order.  Post-insolvency interest ranks equally whether it applies to preferential or non-preferential creditors [note 21] [note 22] [note 23].

See Chapter 36A, Part 4 for further guidance.

 

40.158 Interest rate for post-insolvency period

The rate of interest to be applied for the post-insolvency period (see paragraph 40.157) is whichever is greater of the following [note 24] [note 25]:

  • the rate specified in the legislation (currently 8%) [note 26], and
  • the pre-agreed/contractual rate applicable to that debt.

 

40.159 Date that post-insolvency interest runs from

For trade debts and other similar expenses, post-insolvency interest (see paragraph 40.157) would apply from the date of the insolvency order.

For debts with a fixed re-payment date that is post-insolvency, the interest would apply from the date that the debt was due.

[note 27] [note 28]

For contingent liabilities it is suggested that the date that debt is due (and interest therefore applies) is the date of the insolvency order unless the event triggering payment has occurred in which case the relevant date would the date of that occurrence.

 

[Back to Part 5 – Secured creditors and finance agreements] [On to Part 7 – Right of set-off]