Insolvency Service, HMRC, FCA, OFSI and Companies House updates
IPA Insolvency Practitioner newsletter, July 2025
Insolvency Service
The use of the term ‘creditor’ in insolvency legislation
From Dear IP issue 168.
Practitioners will be aware of the court judgments In the matter of Pindar Scarborough Ltd (in Administration) [2024] EWHC 908 (‘Pindar’) and Boughey & Anor v Toogood International Transport and Agricultural Service Ltd (in administration) [2024] EWHC 1425 (‘Toogood’). These judgments related to extensions to the term of administration under paragraph 78 Schedule B1 Insolvency Act 1986 and both focussed on the definition of ‘secured creditor’ at section 248 of the 1986 Act.
The Insolvency Service has said in the past, most recently in the First Review of the Insolvency (England and Wales) Rules 2016, that in its view, the personality of a creditor is fixed at the entry into an insolvency procedure, regardless of subsequent payment. While the judgments only considered extensions to administration and the definition of secured creditor, the Insolvency Service’s previously stated view on ‘creditor’ applied to all usages of the term in insolvency law. Following the Pindar and Toogood judgments, the Insolvency Service has reconsidered the legislation in relation to this issue, together with the underlying policy rationale of its earlier statements. In the light of this reconsideration and following advice received, the Insolvency Service has reframed its view on this issue.
The word ‘creditor’ is used throughout the Insolvency Act 1986, the Insolvency (England and Wales) Rules 2016 and other items of insolvency legislation. It is not possible – and it would be unhelpful to try – for there to be one blanket, fixed definition covering the term ‘creditor’ in all situations and in all insolvency processes, both personal and corporate. A better understanding of the term is that it is context-specific – on some occasions the term will detach from a creditor once they are paid, but in others it will remain. As the court noted in the Pindar/Toogood cases, the secured creditors in question ceased to be creditors for insolvency law purposes once their charges had been satisfied.
However, there will be other occasions where the term ‘creditor’ can only refer to a party that was owed a debt (including a contingent liability) at the entry to the insolvency process in question. This will continue to be the case regardless of any subsequent payment. For example, where a bankruptcy is annulled on grounds of payment in full (s282(1)(b) Insolvency Act 1986), rule 10.139 Insolvency (England and Wales) Rules 2016 (notice to creditors) would make no sense if the use of the word ‘creditor’ in that rule excluded those who had received payment. In that instance, the term ‘creditor’ must apply to a creditor whose debt had since been paid or the notice, where necessary, could not be issued to anyone.
Accordingly, it will be a matter for the professional judgment of the officeholder, with reference to the specific circumstances of the insolvency case in question, to determine whether an interpretation of the word ‘creditor’ in an insolvency law provision will exclude a creditor whose debt has been repaid. Particular consideration should be given to whether the creditor in question may be prejudiced or disadvantaged by losing their status upon full repayment (as in the rule 10.139 example), in which case their creditor status should not be detached from them.
This view replaces any previously stated by the Insolvency Service.
Any enquiries regarding this article should be directed towards Insolvency Service Policy Team – email: policy.unit@insolvency.gov.uk
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