How to recover a debt from an insolvent company in the UK

Discovering that a company which owes you money has entered insolvency proceedings can be deeply unsettling, particularly when the outstanding sum represents a significant portion of your business’s income. Whether you are a supplier, contractor, or trade creditor, it is natural to feel uncertain about whether you will recover anything at all.

At Isadore Goldman, we deal exclusively with insolvency. Our solicitors provide clear and pragmatic advice to creditors navigating these circumstances, helping you understand your options and protect your interests wherever possible.

What happens when a company that owes you money becomes insolvent?

When a company can no longer pay its debts, it will typically enter one of several formal insolvency processes:

• Administration: An insolvency practitioner (the “administrator”) takes control of the company, aiming either to rescue it as a going concern or to achieve a better result for creditors than an immediate winding-up.
• Creditors’ Voluntary Liquidation (CVL): The directors and shareholders resolve to wind the company up. A liquidator is appointed to realise assets and distribute funds to creditors.
• Compulsory liquidation: A court orders the company to be wound up, usually following a creditor’s petition. The official receiver is initially appointed as liquidator.
• Company Voluntary Arrangement (CVA): The company proposes a repayment plan to creditors. If approved, creditors receive scheduled payments over an agreed period.

Upon learning that a company owes you money and has entered insolvency proceedings, you should gather all relevant documentation, identify the appointed insolvency practitioner, and register your interest as a creditor without delay.

Understanding your position as a creditor

Your likely recovery depends significantly on the category of creditor you fall into. The Insolvency Act 1986 (IA 1986) establishes a strict hierarchy among creditors:

• Secured creditors hold security over company assets, either as a fixed charge (over specific assets such as property or equipment) or a floating charge (over a class of assets that changes over time, such as stock or receivables).
• Preferential creditors include employees owed arrears of wages (up to £800 per employee) and holiday pay, as well as HM Revenue and Customs (HMRC) in respect of certain tax debts.
• Unsecured creditors include most trade creditors, suppliers, and individuals owed money under unpaid invoices or contracts. This is the largest creditor class and, in most cases, the last to receive payment.

The order of payment in insolvency

The IA 1986 prescribes a strict order in which an insolvent company’s assets are distributed:

1. Fixed charge holders (paid from the assets subject to their specific charge)
2. Costs and expenses of the insolvency process (the insolvency practitioner’s fees and legal costs)
3. Preferential creditors
4. The prescribed part (a ring-fenced fund set aside from floating charge realisations for the benefit of unsecured creditors, subject to a statutory cap)
5. Floating charge holders
6. Unsecured creditors
7. Shareholders

Payment  prospects depend on what recoveries are made.

How to submit a proof of debt claim

To participate in any distribution of assets, you must submit a proof of debt form to the appointed insolvency practitioner. This is a formal document in which you set out the amount you are owed and the legal basis for your claim.

The process typically involves:

1. Contacting the insolvency practitioner to obtain the relevant proof of debt form.
2. Completing the form accurately, including the total amount claimed and any interest accrued.
3. Attaching supporting documentation evidencing the debt.
4. Returning the completed form by the deadline specified by the insolvency practitioner.

Deadlines vary between insolvency processes and are set by the insolvency practitioner or the court. Missing a deadline can prejudice your ability to participate in a distribution.

What information you need to support your claim

A well-evidenced proof of debt claim is more likely to be admitted in full. You should gather:

• Copies of all relevant invoices
• Signed contracts or terms and conditions of supply
• Delivery notes or proof of services rendered
• Statements of account
• Correspondence confirming the debt is owed and outstanding
• Any judgment or court order already obtained against the company

The more comprehensively you document the debt, the stronger your position will be if the insolvency practitioner queries or rejects any element of your claim.

Retention of title claims

If you supplied goods under a contract containing a retention of title (ROT) clause (sometimes called a Romalpa clause), you may be entitled to reclaim those goods rather than proving as an unsecured creditor for their value.

An ROT clause is a contractual provision stipulating that ownership of goods does not pass to the buyer until payment has been made in full. To rely on one, you will generally need to show that:

• The clause was incorporated into the contract before the goods were supplied
• The goods remain identifiable and have not been mixed, processed, or sold on
• You notify the insolvency practitioner promptly and follow the correct procedure

ROT claims require timely action. If the goods have already been processed or sold, the right to reclaim them may be lost, and you will need to prove as an unsecured creditor for the outstanding sum instead.

Can you pursue directors personally?

In most cases, a company’s liabilities are separate from the personal liability of its directors. However, there are circumstances in which directors may face personal exposure:

• Personal guarantees: If a director provided a personal guarantee in respect of the debt owed to you, you may be able to pursue them directly for the guaranteed amount.
• Wrongful trading: Under section 214 of the IA 1986, a director who continued to trade when they knew, or ought to have concluded, that there was no reasonable prospect of the company avoiding insolvent liquidation may be ordered to contribute personally to the company’s assets. Our claims against directors team can advise on whether this avenue is worth pursuing.
• Misfeasance and breach of duty: Directors who have misapplied company assets or otherwise breached their duties may be subject to a claim under section 212 of the IA 1986. Further detail is available on our breach of duty and misfeasance
• Phoenix companies: If you suspect that directors have deliberately wound the company down and restarted under a new entity to avoid paying creditors, this may constitute unlawful phoenixing.

Where director misconduct is serious, it may also give rise to director disqualification proceedings.

Realistic expectations: how much will you recover?

Honest advice requires acknowledging that unsecured creditors sometimes recover little or nothing from an insolvent company. In many liquidations for example, once the costs of the insolvency process and higher-ranking creditors have been paid, insufficient assets remain to make any meaningful distribution to unsecured creditors.

Where a distribution is made, unsecured creditors frequently receive only a small fraction of the amount owed, often described as “pence in the pound.” Timeframes for distributions can also be lengthy, sometimes extending to several years in complex cases.

This is not a reason to avoid registering your claim. You should always submit a proof of debt to preserve your position, explore any ROT rights you may hold, and take early advice on whether director liability claims are viable. Our company liquidation page sets out what creditors can expect at each stage of the process.

Contact our solicitors for advice on recovering a debt from an insolvent company

Facing a situation where a company that owes you money has become insolvent is challenging, and the legal process can feel daunting. Our solicitors at Isadore Goldman provide immediate, expert advice to creditors, helping you understand your rights, submit your claim correctly, and pursue every available avenue of recovery.

With offices in London, Norwich and Portsmouth, we are well placed to assist creditors across England and Wales. To arrange an appointment, please email us at info@isadoregoldman.com.