The debtor's property has been sold, but the proceeds do not cover every creditor. At that point what determines who receives what is not who started proceedings first, but the ranking laid down by the law.
The enforcement office then draws up a distribution table showing how the money is to be divided. For a creditor matters do not end there: you have seven days to challenge the table, and where you must take that challenge depends on what you are challenging.
When is a distribution table drawn up?
The law states the condition plainly: where the sale proceeds are not sufficient to pay every creditor's claim in full, the enforcement office draws up a table of creditors. If the money covers everyone, no table is needed.
Creditors are admitted to the rank they would occupy on bankruptcy, so the ordering is taken from bankruptcy law. The law makes one important distinction, however: for admission to the first three ranks the operative date is the date of the attachment request.
A copy of the table is served on the interested parties by the enforcement office. The periods for challenging it run from that service.
How the ranking works
Pledges come first: creditors whose claims are secured by pledge have a right of priority over the sale proceeds. Duties and taxes payable on particular goods and property, such as customs duty and property tax, rank after secured claims.
Claims that are secured but not covered by the pledge, and unsecured claims, fall into four ranks:
| Rank | Scope |
|---|---|
| First | Employees' claims arising from the employment relationship — including notice and severance pay accrued within the year before the opening of bankruptcy — and notice and severance pay earned on termination of employment through bankruptcy; employers' debts to employee assistance funds; maintenance claims accrued in the last year |
| Second | Claims of persons whose property was left to the debtor's administration through guardianship or curatorship, arising from that relationship |
| Third | Claims stated to be preferential in their own special legislation |
| Fourth | All other non-preferential claims |
In calculating the one-year periods in the first and second ranks, certain periods are left out of account: any composition period before the opening of bankruptcy (including the moratorium), any period of postponement of bankruptcy, and the period during which an action concerning the claim was pending.
Challenging the table: which route, which forum?
This is where mistakes are most often made. The law does not provide a single route; it divides the challenge according to its subject matter.
| Subject of the challenge | Route | Forum |
|---|---|---|
| The substance or amount of a claim | Action (simplified procedure) | The court of the place where enforcement is carried out |
| Ranking only | Complaint | The enforcement court |
On both routes the period is seven days from service of the copy of the table. The action is brought against the creditors concerned.
The distinction can be put this way: if you say that a claim shown in the table does not in fact exist, or that its amount is wrong, that goes to substance and requires an action. If you accept the claim exists but say it has been placed in the wrong rank, that is a matter for complaint.
Choosing the wrong route costs time, and the seven days continue to run meanwhile.
Can a creditor shown in the table collect straight away?
As a rule no distribution is made until the challenge process is complete. The law does, however, provide an option: a creditor who has been served following the drawing up of the table and who appears in it as entitled may collect the sum allotted to them by filing a definite and open-ended bank guarantee with the file.
The guarantee must undertake that the sum collected, together with interest running to the date of repayment if repayment becomes necessary, will be paid into the file on the enforcement office's first written demand. The amount to be guaranteed is set by the enforcement office.
For creditors to whom cash flow matters this is a practical route: you take the money while the challenge runs and cover the risk with the guarantee.
Participating in the attachment: the precondition for a place in the table
To appear in the distribution table you must first be able to participate in the attachment. The law lists the creditors who may participate at the same level, up to the point when the proceeds of the property sold on the first attachment reach the office. They are creditors whose claims rest on one of the following:
- A certificate of insolvency obtained on proceedings brought before the enforcement request (where the first attachment rests on ordinary enforcement) or before the action was brought (where it rests on a judgment).
- A judgment obtained in an action commenced before those dates.
- An official instrument, or one whose date and signature are certified, dated before those dates.
- A receipt or document issued before those dates by public offices or competent authorities within their powers and in due form.
Creditors relying on one of these participate at the same level, and on application the enforcement office makes further attachments sufficient to cover all claims at that level. Other creditors may participate only in respect of any surplus remaining from the earlier level.
Frequently asked questions
- I commenced proceedings first — am I paid first? No. Where the proceeds are insufficient, distribution follows the table; having started early does not change your rank.
- Where does my commercial claim rank? Ordinary commercial claims not secured by pledge rank, as a rule, in the fourth rank.
- I hold a pledge — how far does that help? Secured creditors have a right of priority over the sale proceeds, ahead of the four-rank structure.
- How do I challenge the table? If you challenge the substance or amount of a claim, by action in the court of the place of enforcement; if only the ranking, by complaint to the enforcement court.
- How long do I have? Seven days from service of the copy of the table.
- Can I take my share while a challenge is pending? If you appear in the table as entitled, you may collect it by filing a definite and open-ended bank guarantee.
- I attached later — can I participate? If your claim rests on one of the documents listed in the law you may participate at the same level; otherwise only in any surplus from the earlier level.
- Are employees paid before me? First-rank employee claims come before fourth-rank claims.
How we work on these files
When proceedings begin we assess the rank your claim will take and whether the document you hold is sufficient for participation in the attachment. Once the table is drawn up we examine it, determine whether the challenge goes to substance or to ranking, and apply to the correct forum within the seven days. We consider early collection against a bank guarantee; and in portfolios of many files we track service of tables and the periods file by file.