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Who has the burden of proof?

By Edward Judge - Partner, Restructuring & Insolvency

In a situation where one creditor's proof of debt is questioned by a separate, competing creditor, upon which creditor does the burden of proof sit.

It is an interesting question, and two recent cases published within days of each other (Levi Solicitors LLP -v- Wilson [2022] EWHC 24 (Ch) and Elser -v- McCarthy [2022] EWHC 32 (Ch)) deal with this. Levi was decided in Leeds and Elser was decided in London.

One matter was clear; the burden is not on the IP.

Is it for the Appellant creditor to prove that the debt does not exist, or for the Respondent creditor to prove that his debt does exist.

Levi dealt with the valuation of a claim for the purposes of a creditor vote in a CVA whereas Elser dealt with a creditor vote in an IVA.  However, the question and the answer is the same in both cases and would also relate to dealing with claims in relation to other forms of insolvency and the valuation of claims for dividend purposes.

Both of the courts recognised that, although the word appeal is often used in relation to these actions, these applications really constitute an application for the court to address the matter from the start as though no decision had already been made.  All parties can, and almost always do, produce further evidence and can be cross-examined in relation to this matter.  The court is not limited to the evidence that was before the office holder. 

Both of the courts recognised that there was clearly an established precedent that where the challenge is made by the creditor whose proof has been rejected, the burden of proof to establish his claim lies clearly on the creditor (McCarthy -v- Tann [2015] EWCH 2049 (Ch); re JPF Clarke (Construction) Limited [2020] BPIR 194).  However, both courts agree that there was no authority on the burden of proof where one creditor challenges the admission of the proof of debt of another creditor.

As stated above, the choices are:

  1. That the challenging creditor has the burden of proof to show that the debt was valued incorrectly; or

  2. That the creditor whose proof has been challenged has the burden of proof to prove that his debt is due and should be admitted into the insolvency estate. 

Both Judges came to the same conclusion that it was logical that where the court was reviewing a claim by way of a re-hearing, then it should be for the creditor whose asserting the claim to prove his debt.

This approach is clearly logical.  It would almost always be the case that the creditor appealing the proof of debt of another creditor would have little or no documentation or information about the debt being proved. He would, in effect, have to prove a negative which we all know is much more difficult to do than to prove a positive.  The creditor whose proof of debt is being questioned will have all the relevant documents and background information to provide to the court so that the court can make a proper decision reviewing the relevant documents and the circumstances of the debt. 

If the opposite view had been taken, then one may end up with the absurd situation that the creditor whose proof of debt has been challenged could simply sit back and do nothing.  This is on the basis that the challenging creditor is unlikely to have sufficient information or documentation to satisfy the burden required to successfully challenge the quantum, or admission for voting purposes, of the proof of debt. 

These cases have now (at first instance anyway), cleared up this interesting question.