Non-interest-bearing secured claim not yet due: allocating interest from the distribution pool

A claim that is not yet due becomes payable only at a later date determined from the instrument or the underlying legal relationship. The term does not mean that the claim is outdated or unenforceable. Non-interest-bearing means, for this analysis, that no agreed interest runs on the capital until the due date.

Section 223(3) EO attaches a specific payment route to that status. When the secured claim is settled in cash, the amount attributable to it is not left without further treatment until the due date. It must be invested at interest for that period.

This rule concerns the handling of money in the distribution proceedings. It answers a different question from access to the judicial auction file, which helps prepare the review of reports and procedural documents.

Under section 223(3) EO, the interest accruing until the claim becomes due is allocated to persons entitled to payment who are not fully satisfied from the distribution pool. Their ranking determines the order of allocation. The interest is therefore not a general addition to the capital of the originally deferred claim.

The file must answer two separate questions. Which persons do not receive the amount to which they are entitled from the pool, and in what order must their claims be considered? Only those findings make the allocation of the interest verifiable.

If there are no such persons, the statute allocates the interest to the debtor. This subsidiary allocation should not be replaced by an assumption that the secured creditor must receive the investment return in every case.

Section 223(1) EO provides cash payment as the general route for secured claims. The creditor may still consent at the distribution hearing to the auction buyer assuming the debt against the highest bid and releasing the former debtor. The release therefore does not follow from the auction award alone.

For an assumption, section 223(2) EO requires arrears of interest up to the auction award and the other ancillary amounts under sections 216 and 217 EO to be settled in cash from the distribution pool. These items must be kept separate from the assumed principal debt.

For a non-interest-bearing claim not yet due, section 223(4) EO additionally requires the auction buyer to pay statutory interest from the auction award until the due date. The interest is used under the rule in the preceding subsection. The assumption changes the payment route, but not the statutory purpose of the interest.

The security instrument, the due-date clause, the absence of an interest agreement and the current claim balance should be kept together for the review. The land-register rank, the filed claim and the draft or final distribution order should be added where they exist in the specific proceedings.

For cash payment, record the amount attributable to the claim, the start of the investment and the due date. The persons not fully satisfied and their rank must be visible in the distribution documents before the interest can be allocated.

For an assumption, the same review must include the creditor consent given at the distribution hearing, the release of the former debtor, the arrears settled in cash and the statutory interest until the due date. The article on the auction buyer’s rights after an assumed secured claim covers an adjacent but separate issue.