Investigating proof of debts and going behind court judgments

Insolvency-Lawyer

When can a liquidator (or trustee in bankruptcy) reject a proof of debt?

In dealing with distressed companies and estates, liquidators and trustees are faced with competing claims and a limited number of assets in which to meet those competing claims. The situation is further complicated by the increasing costs involved in administering the estate or company.

Often, many creditors (particularly unsecured creditors) are unable to recover the whole or even a portion of their debt. Therefore, liquidators and trustees are required to scrutinise claims made by creditors to ensure that any claims made are legitimately incurred and provable debts.

Once a creditor has lodged their claim in the estate[1] the trustee or liquidator is required to examine each proof and the grounds of the debt. After examination, the trustee or liquidator may choose to:

  1. Admit the proof of debt;
  2. Admit it in part or reject it in part;
  3. Reject it in whole; or
  4. Require further evidence in support of the proof of debt.

In practice, if the trustee or liquidator is not satisfied with the proof, they will require further information from the creditor before rejecting the proof. The Courts have consistently noted that a trustee or liquidator in determining whether or not to admit or reject a proof of debt will be acting in a quasi-judicial capacity

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