An estate is deemed to be bankrupt when the total value of its debts and liabilities (including conditional and future liabilities) is greater than the total value of its assets. A bankrupt estate is often a very daunting prospect for the executors or administrators (the PRs). The task of administering such an estate is challenging and often fraught with pitfalls. What should the PRs look out for?

If I was to provide some top tips for those potentially faced with insolvent estates, I would say the following are my top 3:

In a comprehensive judgment arising out of the collapse of Lehman Brothers, the UK Supreme Court recently determined the ranking of creditors.

Principally, the Court held that Lehman Brothers International (Europe)'s subordinated debt holders were "at the bottom of the waterfall", behind statutory interest and non-provable debt claimants.

What is its aim?

The general principle of the protocol makes sense: provide the debtor with all the information in order that they can make an informed decision, and respond regarding payment or any issues they disagree with and try and avoid involving the court where possible. In a genuine dispute where proceedings might otherwise be brought prematurely before the individual debtor had a chance to review and consider all the information, this level of consumer protection is welcomed.

After a lengthy consultation period, the Pre-Action Protocol for Debt Claims (PAPDC) has now been finalised and will come into force on 1 October 2017. This protocol will apply to lenders who are seeking payment of a debt from an individual/ sole trader, as a debtor or guarantor. Now is the time to update your systems and procedures to accommodate the new protocol requirements.

What is required?

Today, thanks to the high-cost of current court fees, small to medium-sized enterprises (SMEs) face the problem of not getting paid by a customer and then, subsequently, not being able to go to court to get paid.

The Supreme Court's decision in Lehman Waterfall I was handed down this morning. DLA Piper represents one of the successful appellants, Lehman Brothers Limited (in administration) (LBL).

The court was asked to consider certain issues relating to distributions in the estate of Lehman Brothers International (Europe) (LBIE), an unlimited company in administration. Such issues arose due to a substantial anticipated surplus in LBIE and sought to resolve particular lacunas in UK insolvency legislation.

Facts

This case concerned the rejection by the liquidators of Saff One LLP (‘LLP’) of a proof of debt lodged by ESS. The issue was whether a tax mitigation structure involving a loan to LLP for purported investment in the Ultra Green Scheme gave rise to a provable debt if the monies ‘loaned’ passed in a circle and no such investment was made.

The Insolvency Rules 2016 ("IR 2016") are due to come into force in England and Wales on 6 April 2017. Its purpose is to modernise and streamline the insolvency process in England and Wales in order to reduce the costs and potentially increase returns to creditors. IR 2016 incorporates the changes to insolvency law and practice brought about by the Deregulation Act 2015 and the Small Business, Enterprise and Employment Act 2015.

This article highlights the principal areas of change and their practical implications.

Background

In the UK case of CFL Finance Limited v Rubin and Ors, a creditor had sought to make an individual bankrupt. A creditors' meeting was held.  At the meeting, a proposal for an Individual Voluntary Arrangement was approved by the creditor that held the largest portion of debt (and therefore 90.43% of the vote).  The other two creditors voted against the proposal.

A creditor in a debt recovery matter can collect more information about the judgment debtor’s financial position through examination. The examination of a debtor isn’t a way to enforce the debt but rather, obtain more information about their assets, liabilities, income and expenditure. This can help you determine what recovery options are available or even if the debtor is worth pursuing.

What is the First Step?

Under the Uniform Civil Procedure Rules (NSW), you will need to prepare and send an Examination Notice to the Judgment Debtor.