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insolvency law - proof of claim (Read 6399 times)

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insolvency law - proof of claim
May 14th, 2003 at 11:53pm
Dear Friends,

I would like to discuss the need for s 153 of the Insolvency Act, 1986.

According to s 153 of the Insolvency Act, 1986:
"The Court may fix a time or times within which creditors are to prove their debts or claims or to be excluded from the benefit of any distribution made before those debts are proved".

Bailey, Groves & Smith explain, at p. 451:
"Although no time for proving is specified in the Insolvency Rules, 1986, the court may fix a time or times within which creditors are to prove their debts or claims failing which they may be excluded from any distribution, including a distribution to contributories, made before the debts are proved. The court may delegate this power to the liquidator. The usual practice of the court is not to prevent late proof but to allow the creditor to prove on terms that dividends already made are not disturbed and on terms as to costs".

(See also p. 407 & 441 at their book).

Let us assume that a period of time was fixed by the court (or the liquidator) for proving claims and that only one creditor filed a claim (which was approved) in the sum of 1000$. The liquidator holds at that time 500$ and distributes that sum, as a 50% dividend, to the creditor.

After the distribution, another creditor files a claim in the sum of 1000$ and the liquidator discovers 600$ that belonged to the insolvent company.

What does s 153 means?

Option 1:
The meaning of "excluded" is that we look only at the debts at the date of the distribution [500 (1000-500) to the first creditor that received the first dividend, and 1000 to the "late creditor"]. The first creditor will receive 200$ and the "late creditor" will receive 400$. At total, the first creditor will get (from the total 1100$ dividends) 700$ and the late creditor will receive only 400$.

Option 2: 
The meaning of "excluded" is only that we don't disturb any dividend that was distributed. When the "late creditor" arrives he has the right to receive the 50% dividend that he missed before any further dividend will be paid. The "late creditor" will receive 500$ and only the last 100$ will be divided equally to both creditors. At total, the first creditor will get (from the total 1100$ dividends) 550$ and the "late creditor" will also receive 550$.

My question is, which of the above is the right option, if any? 

I understand that when the court (or the liquidator) doesn't fix a time for proving claims the second option will apply according to rules 4.182 and 11.8 to the Insolvency Rules, 1986.

As Bailey, Groves & Smith explain, at p. 488:
"Neither a creditor who has not proved his debt before the declaration of any dividend nor a creditor who increases the amount claimed in his proof after a payment of dividend is entitled to disturb dividends which have already been distributed [Insolvency rules 1986, r 4.182(2)]. He will, however, be entitled to be paid such dividend as he has not yet received out of any available money and in any event before any further dividend is paid [Insolvency rules 1986, r 11.8(1)(2)]".

Am I right? If so, what is the need for s 153 to the Insolvency Act, 1986?

Was it always the English Law (see In re General Rolling Stock Company Joint Stock Discount Co's Claim (1872))?

I would appreciate if you could help me solve the puzzle and I would like to apologize for my English - my Hebrew is better.

Thank you in advance,

Ziv Eisner.
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