The Notice to Creditors lands on your desk a fortnight after your finance team flagged that the BACS had bounced. The letter is from a licensed insolvency practitioner. Your customer has gone into creditors’ voluntary liquidation, and the £27,000 invoice you expected to clear this month is now a claim in an estate you cannot see.
If you are a supplier, a landlord, a subcontractor, or a small business that extended credit, you have moved from a commercial relationship to a statutory process run by strangers. The rules are fixed by the Insolvency Act 1986 and the Insolvency (England and Wales) Rules 2016, and the outcome for you is narrower than the letter suggests.
In our caseload, creditors who act inside the first fortnight recover more, not because they are paid sooner, but because the evidence they still hold (delivery notes, retention of title clauses, signed proofs of posting) is the evidence that survives the liquidator’s cut-off.
Before you file anything, check the position. Search the debtor’s name on the London Gazette. A formal notice of liquidation, administration, or receivership must be advertised there. Then cross-reference with Companies House: the filing history will show an AM01 (administrator appointment), LIQ01/02 (liquidator appointment), or DS01 (strike-off).
If nothing is gazetted and Companies House is quiet, the company may simply be behind on payment rather than insolvent. That changes your approach.
We have seen directors stall a £40,000 invoice for six months by implying insolvency, then pay in full once a statutory demand above the £750 threshold landed at the registered office. The difference between a slow payer and an insolvent one is evidence, not tone of voice.
We reconstruct this picture for our clients in the first call. If your debtor is insolvent, you need to know what a creditor is entitled to do before the first creditors’ meeting. If they are not, the route is a statutory demand, a winding-up petition, or County Court action, and the fees are known (£343 court fee on a petition, £2,600 Official Receiver deposit on top).
Where Your Claim Sits Against an Insolvent Company
Your recovery is not set by how loudly you chase. It is set by Schedule 6 of the Insolvency Act 1986, which ranks creditors in a fixed waterfall.
Secured creditors with a fixed charge (usually the bank holding a debenture) are paid first from the asset they hold. Next come the expenses of the insolvency, then ordinary preferential creditors: employees up to a statutory cap of £800 in arrears of wages, holiday pay, and occupational pension contributions.
Since 1 December 2020, under the Finance Act 2020, HMRC returned as a secondary preferential creditor for VAT, PAYE, employee NIC, and Construction Industry Scheme deductions. There is no cap and no time limit on those amounts. Corporation Tax and employer NIC remain unsecured.
Only after those tiers are paid does the prescribed part come into play: a carve-out from floating charge realisations for unsecured creditors, capped at £800,000 on floating charges created on or after 6 April 2020. Then floating charge holders. Then ordinary unsecured creditors (you, in most cases). Then shareholders, which is to say, no one, in most cases.
If you want a fuller breakdown of the preferential versus non-preferential creditor ranking, we keep a separate guide. For the letter on your desk, the point is simpler: unsecured trade creditors in an ordinary liquidation usually recover pennies in the pound. In our caseload, typical dividends for unsecured suppliers sit between zero and twelve pence.
Submitting a Proof of Debt to the Insolvent Company’s Liquidator
The Proof of Debt is your formal claim. It is governed by rule 14.3 of the Insolvency (England and Wales) Rules 2016, and the office-holder will either post you a blank form or direct you to an online portal. Do not wait for a reminder. Liquidators distribute funds on a cut-off date, and a late claim ranks behind the dividend that has already been declared.
Your Proof of Debt must include the amount owed at the date of insolvency, the nature of the debt, the consideration given, any security held, and whether you hold a retention of title clause or a personal guarantee from a director.
Attach the underlying invoices, signed delivery notes, the original contract, and any credit control correspondence. The office-holder may accept, reduce, or reject the proof. If they reduce or reject it, they must give reasons, and you have 21 days to appeal under rule 14.8.
We draft proofs for clients where the debt has been disputed on the way into liquidation. Directors often dispute amounts in their final weeks to depress unsecured figures ahead of appointment.
If your invoices are clean and supported, say so. If the debt is partly contested, claim the agreed sum and note the disputed portion separately, so the IP has something to admit rather than reject.
What Retention of Title and Set-Off Mean for Your Position
If you supplied goods on a retention of title (ROT) clause, and those goods are still identifiable in the debtor’s warehouse, they are not part of the insolvent estate. You can reclaim them.
The clause must be in your contract, valid under the Sale of Goods Act 1979, and the goods must be traceable. Mixed, processed, or resold stock usually defeats the claim, though a well-drafted “proceeds” clause can sometimes carry it through.
In practice, ROT recoveries succeed when the supplier is on the phone to the IP within days of appointment and can drive to site with a delivery manifest. They fail when the supplier waits a month and the stock has been sold through a pre-pack. If you sell goods on credit, your ROT clause is only as good as the speed you enforce it.
Set-off is the other lever. Under rule 14.25 of IR 2016, if there are mutual debts between you and the debtor, those debts are automatically set off at the date of insolvency, and you prove only for the net figure.
This matters if you have a trading relationship that runs both ways. Do not pay the balance you owe them after insolvency; set it off in your Proof of Debt instead.
Timing, Dividends, and Realistic Recovery Expectations
A standard creditors’ voluntary liquidation takes six to eighteen months from appointment to first distribution, sometimes longer if there is litigation against directors or trading companies to sell. Compulsory liquidations often take longer because the Official Receiver starts from a cold position.
We will not pretend dividends are predictable. What drives the outcome is whether the liquidator finds recoverable assets beyond the secured lender’s charge.
Common recoveries that put money into the unsecured pot: director loan account balances (the overdrawn balance is a debt to the company); unlawful dividends under section 830 Companies Act 2006; preferences under section 239 Insolvency Act 1986; transactions at undervalue under section 238; and misfeasance under section 212.
If the IP brings a claim against the directors and wins, the proceeds flow into the unsecured estate and lift the dividend for creditors like you.
This is one reason we push clients to engage with the IP’s information requests rather than ignore them. A creditor who supplies a clear picture of the trading pattern in the twelve months before appointment often changes what the IP chooses to investigate.
When You Can Pursue Directors of an Insolvent Company Personally
The default rule under Salomon v A Salomon & Co Ltd [1897] AC 22 is that the limited company is a separate legal person, and directors are not liable for its debts. There are routes around that, and they matter when the company is empty.
First, personal guarantees. If a director signed a PG for your supply account, your claim against them survives the company’s insolvency. You enforce it directly, through County Court proceedings or bankruptcy (with a £680 total cost via the adjudicator route). PGs sit outside the waterfall entirely.
Second, the IP’s own claims. The liquidator can bring misfeasance proceedings under section 212 IA 1986, wrongful trading under section 214, preferences under section 239, or transactions at undervalue under section 238.
You do not bring those yourself, but the IP may, and the recovery flows back to the unsecured pot. BTI 2014 LLC v Sequana SA [2022] UKSC 25 confirmed that directors owe a duty to creditors when insolvency is probable, which has sharpened the IP’s hand on late-stage trading decisions.
Third, dissolved companies. If the debtor has been struck off without liquidation, you can apply to Companies House to restore it so a proper insolvency process can run.
The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 also gives the Insolvency Service power to investigate and disqualify directors of dissolved companies. That does not get your money back, but it creates pressure that sometimes does. For the fuller mechanics, see our page on what counts as fraudulent trading.
Your Next Step
The hard truth: if your debtor is in an ordinary unsecured position, your likely recovery is low, and most of the movement you can make happens in the first four weeks after appointment.
The work that matters is unglamorous. Confirm the insolvency on Companies House and the Gazette. File a clean Proof of Debt with supporting invoices. Assert any retention of title immediately. Set off any mutual balance. Preserve any personal guarantee against a director. Respond to the IP’s questions rather than the IP’s assumptions.
If your claim is above £10,000, if there is a PG, or if you suspect preferential payments or trading at the expense of creditors in the last six months, the calculus changes. That is when our team gets involved.
We have licensed insolvency practitioners who review the liquidator’s strategy from the creditor’s side. We can tell you within a call whether the estate is likely to produce a dividend or whether you should write the debt off and claim VAT bad debt relief under section 36 VATA 1994 instead.
For most unsecured suppliers, the answer is a clean proof, a small dividend, and a tighter credit policy next time. For a minority of creditors, where the director has guarantees, connected-party preferences, or recoverable conduct claims, there is real money to be had, and the window is short. The split matters. Call us on 0800 074 6757 if you are unsure which side you sit on.
Frequently Asked Questions
What happens if I miss the liquidator’s claim deadline?
You can still lodge a Proof of Debt after the stated deadline, provided it is before the final distribution. The liquidator is not obliged to re-open a dividend already paid, so your late claim ranks for the next round only. Contact the IP in writing within days of realising you are late.
Is it worth suing a company that is already in liquidation?
No. Section 130 IA 1986 imposes an automatic stay on new proceedings once a winding-up order is made, and a creditors’ voluntary liquidation has the same practical effect. Your remedy is the Proof of Debt process, not litigation against the company.
Can I claim VAT back on the bad debt?
Yes, under section 36 VATA 1994, once the debt is six months overdue and has been written off in your accounts, you can reclaim the VAT on your next return. The insolvency of the debtor does not change this; it just confirms that the write-off is justified.
Do I need a solicitor to submit a Proof of Debt?
For a straightforward trade debt, no. The form is plain and the supporting documents are invoices you already hold. If the claim is disputed, involves a PG, or includes a retention of title argument over mixed stock, a solicitor or licensed IP adds value. Otherwise, the fee is not recoverable and the outcome is the same.
What does the prescribed part actually pay?
The prescribed part is a statutory ring-fence from floating charge realisations for unsecured creditors, capped at £800,000 on floating charges created on or after 6 April 2020 (£600,000 on older charges). It is calculated as 50% of the first £10,000 of net floating charge property and 20% of the excess above that. For most liquidations it produces a modest top-up split across the unsecured pool.
Could the liquidator claw back payments I already received?
Possibly. If you were paid in the six months before liquidation while other creditors were left unpaid, the liquidator can review whether the payment counts as a preference under section 239 IA 1986. For unconnected suppliers, the liquidator must prove the company was “influenced by a desire to prefer” you, a high bar set by Re M.C. Bacon Ltd. Ordinary trade payments are rarely clawed back.
How do I know if a personal guarantee is worth enforcing?
Check whether the director owns a property, holds other company shares, or has visible assets on a Land Registry search. A PG against a director with no equity in a home and no other income produces a bankruptcy petition and little cash. A PG against a homeowning director with a mortgage-free property is a different calculation entirely.
Methodology & Disclosure
This guide was written by our editorial team and reviewed by a licensed insolvency practitioner within Company Debt’s creditor services practice. It draws on the Insolvency Act 1986 (ss.123, 175, 212, 214, 238, 239, 241 and Sch 6), the Insolvency (England and Wales) Rules 2016 (rr.14.3, 14.8, 14.25), and the Finance Act 2020 Crown preference reinstatement.
We updated the Sequana authority after the 2022 Supreme Court decision and have cross-checked fees against the current HMCTS schedule. Our review cycle for insolvency content is six-monthly, with interim updates when statute or case law moves.
Company Debt is a UK insolvency and business rescue firm. Our advice to creditors is independent of the office-holder’s fee arrangements. Where we act for a creditor, we disclose any prior contact with the debtor or the appointed IP before accepting instructions. We do not guarantee recovery outcomes; dividends depend on estate realisations that neither the creditor nor the adviser controls.
