(a) In relation to each type of insolvency procedure available in the legal system of this economy, what types of claims of creditors are properly admissible for payment in the context of that procedure? (for example liquidated debts, future debts, contingent claims, secured claims, unliquidated claims for damages, interest claims, costs of administration or of legal proceedings, periodical payments, debts owed by guarantors of the business organization.)

(b) At what date are the amounts of admissible debts computed?

(c) By what method are claims of creditors proven by those creditors in the context of each type of insolvency procedure?

(d) How are disputed claims made by creditors adjudicated upon? (for example by the administrator, or by a Court.)

 

Under the provisions of rule 149 of the Companies Court Rules every creditor is to prove his debt unless the judge in a particular case directs that any creditor or class of creditors shall be admitted without proof. A debt may be proved by delivering or sending by post to the liquidator an affidavit verifying the debt made by the creditor or by a person authorized by him.

A debt has to be proved and must be a debt proved in praesenti. In relation to the future debts, unless the company is carrying on the business for the beneficial winding up of the company through the official liquidator, future debts are not admissible unless they are claims of secured creditors as continuing obligations or are proved and subject to discount principles as explained below. Secured claims are normally proved outside of winding up unless the security is waived or given up and the secured creditor proves in winding up. If a claim for liquidated damages or unliquidated claim for damages is pending then a suit of such a nature can be required to be continued by the Company Court and upon adjudication the judgement debt would be admitted as a claim against the company. This would be subject to the leave of the company court. Interest claims have also to be filed before the company court as part of the proof.

On any debt or sums certain payable at a certain time or otherwise wherein interest is not reserved or agreed or which is overdue at the date of the winding up order, the creditor may prove for interest at a rate not exceeding 4% p.a. from the time when the demand in writing was made until the time of payment (Rule 156). If the interest however is contractual then rule 156 has no applicability.

Under rule 158 a creditor may prove for a debt not payable at the date of winding up as if it were presently payable and may receive dividends equally with other creditors deducting only thereout a rebate of interest at the rate of 4% p.a. computing from the date of declaration of the dividend to the time when the debt would have become payable according the terms on which it was contracted.

The value of all debts and claims against the company as far as possible is to be estimate according to the value at the date of the order of the winding up of the company or the date of passing of a resolution for voluntary winding up.

The creditor is liable to produce any negotiable instruments on the basis of which its claims is filed. Alternatively, the claim has to be filed with an affidavit verifying the debt and any voucher substantiating the debt. The official liquidator under rule 159 can call for the production of vouchers referred to in an affidavit of proof or require further evidence in support of the debt. After inspection, under Rule 163 the liquidator is to admit or reject the proof in whole or in part and communicate the decision to the creditor. The creditor has a right within 21 days of the date of the decision to appeal to the company court.

Within 3 months from the date of submission of proofs, a certificate of the proofs filed have to be submitted to the company court.

In the event of a disputed claim, the company court would have to give leave to the disputants and adjudicate the claim as if the civil suit were before it when evidence is required for proof of dues.

Periodical payments like rent or other payments which fall due at stated periods are regulated by rule 157. Persons entitled to the rent or payments may prove for a proportionate part thereof upto the date of winding up order or resolution as if the rent or payment accrue from day to day. If the liquidator remains in occupation then the liquidator shall remain liable for the rent during the occupation.

(a) In relation to each type of insolvency procedure available in the legal system of this economy, what principles apply to the division of available assets of the corporate debtor among those of its creditors entitled to payment? Is there a basic principle of equality of payment, or are rights of priority of payment enjoyed by secured creditors, or by certain classes of creditors over others? (for example costs of the administration, claims for taxes owed by the debtor, amounts owed to employees of the organization.)

(b) Give a brief account of the order of priorities, if any, of payment of creditors prescribed by the legal system of this economy.

 

Rules 272 to 280 deal with sales by the official liquidator and dividends and return of the capital by winding up by the court. No sale has to be made without the previous sanction of the court. No dividend or return of capital is made without the sanction of the court.

Under rule 174 of the Companies Court Rules, the court after hearing all evidence may adjudicate the claims and settle list of creditors. This procedure is followed by the company court as a High Court under rule 167 and by the district court under rule 174. Once the claims are adjudicated then the distributable assets are ordered to be distributed by the company court which settles list of contributories and the persons allowed claims pursuant to proof.

Once the total list of claims is drawn up and settled, there is a basic principle of equality of payment. Since the secured creditors would not participate in the winding up and remain outside winding up their property is not distributable by the winding up court. If, however, the secured creditor has relinquished his security then it would receive equally without preference.

Under the provisions of the Companies Act and Section 529, the debts due as workers due or secured creditors have an overriding preferential claim or priority to all debts.

There are other statutory preferential payments for taxes, revenues and cesses, wages or salary for past due prior to winding up or for period not exceeding 4 months when there is a continuing employment for the beneficial winding up and for provident fund, pension and other claims as stipulated under Section 530 of the Companies Act.

Rules of insolvency for valuation of annuities and contingent liabilities as are prescribed by the Provincial Insolvency Act and the Presidency Town Insolvency Act continue to apply. Under Section 45 of the Presidency Town Insolvency Act a creditor may prove for a debt not payable when a debtor is adjudicated and insolvent as if it were payable presently and may receive dividends equally after deducting rebate. This same principle is embodied in the company court rules. Mutual set off can also be proved before the company court.