Few situations are more frustrating for a creditor than learning that a business debtor has entered voluntary administration, been placed in liquidation, or appointed a receiver. The question is immediate: is any of what is owed recoverable? The answer depends on the circumstances — but there are steps worth taking quickly.
Understand what type of insolvency event it is
The type of insolvency appointment matters. A voluntary administrator is working toward a DOCA (Deed of Company Arrangement) or liquidation. A liquidator is winding the company up. A receiver is typically appointed by a secured creditor over specific assets. Your status as an unsecured creditor is different in each case, and so are your options.
Lodge a proof of debt
In a liquidation, unsecured creditors are invited to lodge a proof of debt — a formal claim for the amount owed. This is the mechanism by which you participate in any dividend that is paid from the liquidation pool. If you do not lodge one, you cannot receive one. The timeframes are set by the liquidator and can be short, so act quickly.
What personal guarantees change
If a director of the debtor company has provided a personal guarantee over the debt, the insolvency of the company does not necessarily end your recovery. The guarantee may be enforceable against the guarantor personally, separately from the company’s insolvency process. This is a situation where specific legal advice is essential.
The realistic expectation
Recovery from an insolvent company is rarely full and is often slow. Unsecured creditors sit behind secured creditors, employees and tax debts in the priority order. A dividend of cents in the dollar — or no dividend at all — is more common than full recovery. The best protection is not a response to insolvency but prevention: strong terms, personal guarantees where appropriate, and acting on overdue accounts early, before insolvency is a risk.
This article is general information. For advice about a specific insolvency situation, speak to a qualified insolvency practitioner or solicitor.