Litigation by insolvent companies – in detail

Claims by and on behalf of insolvent companies vary and it is key to know the different claims that are available in corporate insolvency. Insolvency processes (such as administration, liquidation and administrative receivership) generally involve recovering the property of the company and realising assets. The assets of an insolvent company can also include outstanding debts and other claims or causes of action which may need to be recovered by issuing formal legal action. 

When a company enters a formal insolvency process, it retains any claims it may have before insolvency, for example, claims for outstanding debts, breach of contract, tort, restitution and recovery of property.

There are also claims that may be brought by the office-holder such as the administrator or liquidator. There are three categories of these claims:

• Claims which only exist in an insolvency process and may only be pursued by the insolvency practitioner, not the company itself.
• Procedures which are available to the office-holder thereby enabling it to bring claims personally which existed prior to the insolvency and could, alternatively, be pursued in the name of the company in the ordinary way.  
• Claims which may be available by virtue of the avoidance of transactions provisions upon the company entering into an insolvency process but where no specific claim or procedure is prescribed. 

An office-holder is likely to take a fairly pragmatic view of the company's claims. His aim is to seek to realise assets as quickly and cost effectively as possible. 

The office-holder is unlikely to have strong personal feelings about commercial legal claims against unconnected parties. However, the same is not always true of internal company claims and office-holder claims (such as fraudulent trading claims or misfeasance proceedings) which the office-holder may feel obliged to pursue. The office-holder is unlikely to have personal knowledge of the factual background to a claim. This may place him at a severe disadvantage in the sort of case where witness evidence is critical (for example, a claim based on oral contracts).