When a company goes into liquidation, creditors must act quickly – but they can only recover what the law allows. The Companies Act 1993 provides the rules for determining which claims are admissible, offering a broad framework with key exclusions and specific rules for complex debts.
What qualifies as an admissible claim?
Section 303(1) casts a wide net and allows for the admission of “a debt or liability, present or future, certain or contingent,” including claims for damages in contract or tort. As noted by Wylie J in Nayacakalou v Minister of Education, the section’s “broad and inclusive language” ensures that almost any monetary liability qualifies.
This inclusivity supports the liquidation’s function: to provide an orderly resolution for all debts and liabilities, rather than allowing directors to use liquidation as a shield from specific obligations.
The key exception: fines and penalties
Section 303(2) excludes certain penalties, detailed further in section 308. These include:
- Fines, monetary penalties, sentences of reparation, and other orders for the payment of money, and
- Court-imposed penalties for legislative breaches, and
- Related legal costs.
The rationale is clear: including such penalties in liquidation would reduce returns to innocent creditors. Though some argue these fines represent societal claims, the Act allows the Crown to pursue them separately, outside the liquidation process.
In Department of Internal Affairs v OTT Trading Group Ltd., the court held that legal costs relating to an injunction – separate from a penalty – were admissible, illustrating the careful line between included and excluded claims.
Enforceability and the rule against double proof
Not all monetary claims are admissible. The key requirement is legal enforceability. Inadmissible claims include:
- Statute-barred debts,
- Claims based on illegal contracts,
- Claims for remedies like injunctions or specific performance.
The rule against double proof also applies. As explained in Re Oriental Commercial Bank, a creditor may not recover multiple dividends for what is, in substance, the same debt, even if framed under separate contracts.
Valuation of Claims
Claims are valued as at the date of the liquidation’s commencement. This includes both present and future liabilities. If the value of a claim is uncertain – such as contingent debts or damages – the liquidator may estimate it under section 307, or refer it to the court. Creditors may challenge the valuation if dissatisfied.
Conclusion
The admissibility of claims in liquidation is designed to be comprehensive, while protecting creditor interests and ensuring fairness. Understanding what is – and isn’t – admissible is essential for anyone navigating insolvency proceedings, whether as a creditor, advisor, or insolvency practitioner.
