Office-holder indemnities and security

Published by a LexisNexis Restructuring & Insolvency expert
Practice notes

Office-holder indemnities and security

Published by a LexisNexis Restructuring & Insolvency expert

Practice notes
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Why indemnities and security are required

When an Insolvency practitioner takes office they have a Duty of care to creditors to act bona fide in their best interests.

Depending on the circumstances of the case, an office-holder may find themselves trading a company for a while or completing or taking on contracts and need to protect themselves from personal liability while doing so.

Most office-holders will exclude their own personal liability when they are entering contracts and will ensure they sign any documents as the office-holder, not in their personal capacity. However, they may be unable to fully exclude liability and may need to rely on both statutory indemnities, where available, and additional creditor indemnities.

Indemnities will have differing degrees of importance to office-holders, depending on the office they hold and the steps they are required to take while in office.

Personal liability

The extent of personal liability for an office-holder depends on what office they are holding and to what degree they are personally liable within their role.

In bankruptcy, the bankrupt’s estate vests

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Jurisdiction(s):
United Kingdom
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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