When a creditor lodges a proof of debt with a Trustee in Bankruptcy or a Trustee of a Personal Insolvency Agreement, they claim the amount owing to them as at the ‘relevant date’. In general terms the relevant date will be the date of bankruptcy, or the date of the execution of the Personal Insolvency Agreement.
Sometimes the funds available in a bankrupt estate will be sufficient to pay the creditors’ claims and the costs of the estate in full. Doing so should result in an annulment of the bankruptcy under section 153A of the Act. Leaving aside the issue of the costs of the trustee and ARC etc, the amount that needs to be paid to creditors is not necessarily just the sum of the creditors’ proofs of debt lodged with the trustee, it may also include interest on some of that debt.
Section 153A(1A) [Interest] In determining whether there has been a full payment of a debt that bears interest, the interest must be reckoned up to and including the date on which the debt (including interest) is paid.
The effect is that a Trustee in Bankruptcy can only provide a written certificate annulling the bankruptcy if they are satisfied that all creditor’s claims, including any interest, and costs have been paid in full. But who can claim interest?
Interest can only be claimed on interest bearing debts. These are debts that, as part of their established prior terms with the debtor, included a provision for the charging of interest at a specified rate or under specific circumstances.
This right to receive interest pre-bankruptcy allows the creditor to claim interest on their debt for the period from the date of bankruptcy until the payment of the dividend – but they only are paid that interest after all debts (debts as at the date of bankruptcy) have been paid in full to all creditors. That is, the amounts owing at the time of the bankruptcy must be paid in full before the right to receive post-bankruptcy interest arises.
If a creditor does not have an interest bearing debt, they will not have a claim to any interest on their debt after the date of bankruptcy and will only receive the amount of their debt at the date of bankruptcy.
Common examples of these interest bearing debts are credit card debts and loans from financiers, but sometimes other creditors have interest provisions. If it is likely that a bankrupt will be annulled under this section, the trustee in Bankruptcy will have to obtain details from the creditors to establish whether their debt is an interest bearing debt and, if it is, the amount of interest accruing on the debt up until the payment of the dividend.
Interestingly Section 153A(1A) only effects annulments of a bankruptcy. It does not apply to Personal Insolvency Agreements under Part X of the Act. So even if the proposal was for the payment of creditors claims in full, the amount paid is only that amount owing to the creditor at the time of the Personal Insolvency Agreement, and will not include any interest accruing on interest bearing debts from the date of the Personal Insolvency Agreement to the date of the payment of the dividend.