UK: Counting the Creditors

Last Updated: 22 September 2010
Article by Derek Ellery and Steven Jansch

Where a company is subject to an insolvency process the acting insolvency practitioner must ensure the correct treatment of creditors; otherwise his decisions may be subject to challenge.

Two recent cases illustrate how this can throw up difficult issues for IPs and for creditors in establishing their claims.

Voting at a creditors' meeting according to the amount of a debt that is 'ascertained' - HMRC v Portsmouth City Football Club (in Administration)

Portsmouth FC, which was in administration, entered into a company voluntary arrangement, which was approved by creditors in June 2010. To enter a CVA the proposal must be approved at a meeting by at least 75% by value of the company's creditors.

HMRC claimed over £35m of which the administrator disallowed £13m. The total of £35m would make HMRC a creditor for 25.2% of the debts and therefore able to block the CVA proposal. HMRC favoured a winding up of the company.

The disallowed parts of the claim related to unpaid PAYE and NICs on certain payments to players. At the date of the administration these claims had not been raised by HMRC. After that date and before the CVA proposal meeting a formal assessment was issued for the tax, which HMRC argued made the debt due, as a tax assessment gives rise to an obligation to pay unless the taxpayer makes a successful appeal. In making the assessment HMRC treated the payments as a sham scheme for tax avoidance and assessed PAYE on the full amounts disregarding any part that might be justified.

The insolvency rules allow a creditor to vote in respect of a debt for an unliquidated amount of any debt whose value is not ascertained. For the purposes of voting (but not otherwise) this is based on a value of £1 unless the chairman agrees to put a higher value on it. The chairman valued the disputed part of the HMRC debt at £1. The chairman's decision on any matter under this Rule is subject to appeal to the court by any creditor or member of the company. HMRC appealed.

The court did accept that there is an underlying liability on an employer who fails to account for PAYE and NIC before any formal claim is made by HMRC and before any formal assessment. If and to the extent that the payments were shams there was a claim accordingly. The nature of the claim is therefore one which relies on payments being treated as shams, and may fail to the extent that that was wrong. That value would have to be determined in some sort of inquiry. So both the basis of the claim, and its quantum, could not be treated as certain as at the date of the administration, and the question becomes whether that claim thus described is unliquidated or unascertained.

The court concluded that the Revenue debt was not unascertained in the sense that while the amount is disputed, its determination is not dependent on anything other than an inquiry within the context of a piece of litigation. However, it did conclude that the debt fell to be treated as unliquidated.

The fact that the claim had not been asserted as at the date of the administration indicated to the court that HMRC did not feel it was of a definable amount at that date, and the circumstances of its emerging indicated an intention to make the claim as high as possible and leave it to the taxpayer to challenge it. Neither the court nor the Chairman knew the material on which it was based, but the fact that it apparently encompassed all the payments made, with no apparent acknowledgment that payments might have some value, supports the view that that is the basis on which the claim was ultimately made. As at the date of the administration there was no articulation even to that extent. As at that date there was no more than an underlying claim (which the court assumed for these purposes to exist) for an amount which depended on establishing a sham and then, if that were established, perhaps determining the real value of image rights for which players were "paid". The court was of the view that in those circumstances the creditor cannot "fairly" put a figure on the claim, or at least cannot "fairly" claim the whole amount due to be his debt.

The court was keen to make clear that it was not saying that any debt which can only be finally established by litigation is as an unliquidated debt for the purposes of the Insolvency Rules. There will be many disputed debts, both as to liability and as to amount, which will not fall to be dealt with as an unliquidated debt but which the chairman will have to allow and mark as disputed. The uncertainties as to the quantification of the debt seemed to the court to make it unliquidated for present purposes. HMRC could, in fact, have removed this difficulty if they had served an assessment, which itself gives rise to a defined liability, but they had not done that by the date of the administration which is accepted as being the relevant date for these purposes

Creditors' claims which become time barred during the administration - Leyland Printing Company Limited (in Administration) v Leyland

The companies entered into administration in May 2002, and were still in administration in 2010, several administrators having been in office over this period.

Due to the long running nature of the administration, directions were sought from the court as to the proper treatment of creditors' claims and, specifically, whether the administrator or subsequent liquidator of the companies can and should accept any claims that have become statute-barred since the making of the administration orders for the purpose of proving and receiving a dividend from the realisations that have been made during the course of the administrations

It was discovered that there appeared to be a problem with the status of creditors' claims given the longevity of the administrations. Essentially, apart from one unsecured creditor of LPC, who had legal proceedings pending at the commencement of its administration, all other creditors' claims had become statute-barred under the provisions of the Limitation Act 1980, by, at the latest, May 2008.

It would appear that one of the administrators or his staff had mistakenly confused the effect of liquidation (which, for the purposes of the Limitation Act, causes time to cease running as against creditors' claims at the date of the commencement of the winding up) with an administration (which, under the law applicable to pre-Enterprise Act administrations, does not). Further, no formal acknowledgment of any creditors' claims appears to have taken place which could have operated to stop time running for Limitation Act purposes.

The court agreed with the administrator that the approach of distributing the surplus assets (after satisfaction in full of the claim of the creditor who had commenced litigation) amongst the companies' shareholders would produce an unfair result, and would represent an unexpected windfall for the shareholders. However, the court could see no proper alternative to this course. The court would not allow the fact that members and creditors had not objected, or responded negatively, to the course proposed in the Administrators' latest Progress Report as their agreement to the admission to proof of statute-barred claims. Whilst the administrator indicated, in the Progress Report, his belief that creditors' claims should be accepted, he acknowledged that he could not determine that issue himself, and that the matter must be resolved by the court.

With regret, the court concluded, that there was no justification for the administrator admitting to proof any claims that have become statute-barred since the making of the administration orders. In the absence of consent from the shareholder or shareholders of each company, neither the administrator, nor a subsequent liquidator, of that company can or should accept any of the statute-barred claims for the purpose of proving and receiving a dividend from the realisations that have been made during the course of the relevant administration.

The court did however agree to afford the administrator an opportunity to communicate the terms of this judgment and Order to the shareholders of each company; and to invite them to confirm in writing, whether or not they consented to the admission to proof of the statute-barred claims. If all of the shareholders in either company did so consent, then the administrator was to be at liberty to re-apply for his discharge from office and, for authority to agree the claims of, and to make payments to, the companies' preferential and unsecured creditors. Notwithstanding that order the court agreed that distributing the companies' surplus assets amongst the companies' shareholders, and without regard to the claims of all of the companies' creditors, would produce an unfair result since it would appear to be through no fault on the part of the companies' creditors that their claims had become statute-barred.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.