New 120 day deadline for creditors comes into effect

Creditors are being urged to engage with insolvency practitioners sooner to ensure they are able to recover money owed from bankruptcies as new rules come into place this month that only allow 120 days for claims to be submitted.

The Bankruptcy and Debt Advice (Scotland) Act 2014 marks the biggest change to the personal insolvency regime in Scotland in a generation.

The new Act includes a number of important changes, including financial education and provisions to balance the interests of debtors and creditors, but Matt Henderson, Head of Restructuring at Johnston Carmichael Chartered Accountants believes the 120 day deadline is the procedural change with the biggest impact for those who are owed money by a sole trader or partnership.

The new rules state that only in exceptional circumstances will late submissions be considered.

Mr Henderson said: “Creditors need to be aware of this new time limit. Currently, there is no time limit on submitting claims to a bankruptcy, but from this week, creditors will now have to respond with a statement of claim within 120 days of being contacted by the trustee. It is not clear what circumstances will be considered as exceptional for a late submission, but it is clear that there will be very little scope to allow a claim if the deadline has been missed.

“If a creditor misses the deadline, they will be banned from making a claim against a case and they will not receive a cheque from the appointed insolvency practitioner. It is in the interest of creditors to ensure they engage and respond with some urgency.”

When appointed to handle a bankruptcy of a sole trader or partnership, the insolvency practitioner, or trustee, will write to all those who are owed money and request they complete a Statement of Claim form in order to be considered as a valid creditor. As best practice under the current regulations, the trustee will contact potential creditors on a number of occasions to ensure all those who are owed money are considered in the process.

Mr Henderson added: “The new time limit of 120 days will make the process of bankruptcy administration more streamlined and efficient, which the Act has intended to do, and in my opinion it offers sufficient time for creditors to get in touch and submit a claim. There can be indifference among creditors and some may have a view that there is little point in submitting a claim as they believe there is no hope in recovering their money. However, I would encourage all those who are owed money in a bankruptcy case to get in touch with the trustee at the earliest opportunity. There is no guarantee of full or even part payment, but in order to be kept informed of procedures and to vote at creditors meetings, creditors must register with a valid claim.”