Q&As

A is in administration and owes a sum to B. B owes a sum to A. What steps can B take?

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Published by a UUÂãÁÄÖ±²¥ Restructuring & Insolvency expert
Published on: 21 November 2017
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In this Q&A, we have assumed that B’s claim is smaller than A’s.

Legal process against the company

Under paragraph 43(2) of Schedule B1 to the Insolvency Act 1986 (IA 1986), a moratorium provides that no legal process (which includes legal proceedings, execution, distress and diligence) may be commenced or continued against the company or its property without the consent of the administrator, or the permission of the court. This is sufficiently broad to cover any remaining actions and steps that might be taken against the company or its property. This means that B can only bring an action against A with the permission of the administrator or the court. The purpose of the moratorium (and interim moratorium) is to protect the company and its assets from creditor action during the period of the company's administration (and the pre-appointment period). The moratorium prohibits any steps, actions and processes from being commenced or continued with against the company and its property,

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Jurisdiction(s):
United Kingdom
Related legal acts:
Key definition:
Insolvency definition
What does Insolvency mean?

This can be defined by two alternative tests (Insolvency Act 1986, s 123):

• cash flow test: a company is solvent if it can pay its debts as they fall due, no matter what the state of its balance sheet (Re Patrick & Lyon Ltd [1933] Ch 786);

• balance sheet test: a company which can pay its debts as they fall due may be insolvent if, according to its balance sheet, liabilities (including contingent liabilities) exceed assets.

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