Should a Claim be Admitted or Rejected?
Should the claim be admitted or rejected?
- Section 304 sets out the process for admitting and rejecting creditors’ claims. A creditor must provide full particulars of the claim and identify any document that evidences or substantiates the claim. The creditor must provide any identified document on request by the liquidator. The liquidator must then as soon as practicable accept or reject the claim in whole or in part. The liquidator can later amend or revoke its decision, for example if further information is provided which affects the decision. If the claim is rejected, the liquidator must give notice in writing of the rejection to the person “forthwith”.
- There are no mandatory factors that must be considered or weighed by a liquidator when deciding whether to accept or reject a claim under section 304. However, a liquidator has the following obligations:
It is the liquidator’s responsibility to examine each claim and then admit or reject it – this must be done as soon as possible.
The liquidator’s discretion to admit/reject a claim must be exercised in good faith. The liquidator should request and consider all relevant evidence before making a decision.
A claim may be admitted in part, and the liquidator can change his/her decision to admit or reject a claim but this must be communicated to the claimant in writing. However, there is no express requirement for the liquidator to give reasons for his/her decision.
The liquidator owes a general duty to act in a reasonable, cost effective and efficient manner.
- The information provided by the creditor as part of their claim will be critical. It may be that the claim is fatally flawed due to limitation issues either by statute or under contract. On the other hand the creditor may be credible and compelling evidence as to both the company’s liability for damage and the quantum required to remedy.
- The precise wording of a notice of rejection will depend on the individual claim. The notice should however state that the claim is rejected and the reasons for the decision. Detailed reasoning is not required. However, the notice will need to contain sufficient information to allow the creditor to understand the reason why the claim is rejected so that it can decide whether to challenge the decision under section 284.
- In some cases the liquidator will be required to state the claim is statute barred by the Limitation Act and cannot succeed, or that the contract is in fact with a different entity, or that the creditor has provided insufficient evidence. In other cases the liquidator will need to explain they do not accept or agree with the evidence put forward.
- A claim cannot be rejected simply because the amount claimed is uncertain. Section 307 provides a process where the liquidator may make an estimate of the amount of the claim or apply to the Court for determination of the amount. However, this section generally addresses the situation where liability is accepted but quantum is disputed or uncertain. It is not suitable for a situation where both quantum and liability are in issue.