Meaning
Formal documents submitted by creditors to an insolvency practitioner detail the amount of money owed by a company in liquidation or administration. A proof of debt functions as the primary evidence of a legal claim against the remaining assets of the firm. It must be accompanied by supporting records such as invoices, contracts, ledger entries or court judgments.
This process allows the liquidator to build an accurate list of all liabilities.
Creditor Submission
Filing a claim requires precision to ensure the liquidator accepts the total amount and its priority. A proof of debt identifies whether the claim is secured, preferential, or unsecured. The creditor must state if they hold any collateral that reduces the amount they are seeking.
Failure to file this document on time can result in the creditor being excluded from the distribution of funds.
Claim Adjudication
Reviewing the submitted evidence is a core duty of the officeholder managing the insolvency. The liquidator examines each proof of debt to verify that the debt is genuine and legally enforceable. They have the power to reject a claim in whole or in part.
If a creditor disagrees with the decision, they can appeal to the court to have the claim reinstated.
Distribution Order
Paying out the available cash depends on the final list of verified claims. A proof of debt determines the pro-rata share each unsecured creditor receives from the remaining pool. If the company has very few assets, the dividend might be only a few cents for every dollar owed.
In large manufacturing insolvencies, the process of verifying thousands of claims can take months. This ensures that the payment process is fair and transparent for all parties. The liquidator must keep detailed records of every accepted and rejected claim to defend the final distribution against potential legal challenges.
