Legal Definitions - deferred claim

A deferred claim refers to a demand for payment or an entitlement that, for specific legal or financial reasons, is formally recognized and processed in a future accounting period rather than the current one. It's a claim whose settlement or financial impact is intentionally postponed.

• Example 1: Bankruptcy Proceedings

  Imagine a small business files for bankruptcy. One of its creditors is a supplier who is owed money for goods delivered. However, bankruptcy law often prioritizes certain types of claims, such as secured creditors or administrative expenses, over others. If the court determines that there aren't enough immediate assets to cover all claims, the supplier's claim for payment might be designated as a deferred claim. This means it won't be paid out in the initial distribution of assets but will be considered for payment in a later phase, if and when more funds become available after higher-priority claims are satisfied. The financial recognition and potential payout are pushed to a future accounting period.

• Example 2: Complex Insurance Payouts

  Consider a large manufacturing plant that suffers extensive damage from a fire. The company files an insurance claim for the significant cost of repairs and business interruption. However, the full scope of the damage, the exact cost of rebuilding, and the duration of the business interruption cannot be immediately determined due to ongoing investigations, structural assessments, and supply chain issues for specialized equipment. The insurance company might classify this as a deferred claim, meaning the financial recognition and payout of the claim are postponed until all investigations are complete, the final repair costs are tallied, and the liability is fully established, pushing the financial impact into a subsequent accounting period.

• Example 3: Contractual Dispute Resolution

  A construction company completes a major infrastructure project for a city government. The city, however, disputes a portion of the final invoice, arguing that certain project milestones were not met according to the contract specifications. The construction company believes it is fully entitled to the entire amount. While negotiations and potential arbitration are underway, the construction company might treat the disputed portion of the invoice as a deferred claim in its financial records. This means the firm acknowledges the claim exists but postpones recognizing that specific revenue or the full payment as an asset in the current accounting period until the dispute is resolved and the city formally agrees to pay, or a court orders payment.