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Insights

It can be worrying for you when a company that owes you money goes into liquidation. Despite this, there are options available to recover some, if not all the debt.

Am I a creditor?

If money is owed to you by a company, you are considered a ‘creditor.’ There are two types of creditors:

  1. Secured creditors – these creditors have a ‘charge’ over the company’s asset. For example, a bank may have a charge over a property which is subject to a mortgage.
  2. Unsecured creditors – do not have a charge and therefore do not possess any collateral to fall back on if the loan is defaulted.

The category in which you fall into determines which order you will get paid.

How do I recover the debt?

The first step in recovering a debt is to contact the Liquidator. A Liquidator is appointed to gather all assets of the company and settle all claims before dissolving the company. To show that you are in fact owed the money, you must complete a Proof of Debt form. This includes attaching evidence to support your claim (e.g. court documents for pending proceedings, invoices etc.). Once received, a liquidator has 28 days to approve or reject the claim.

If your debt is approved, you are given certain rights as a creditor. This includes the right to vote at any creditor’s meeting to determine the amount the company may pay them. Generally, liquidation results in you getting paid cents on the dollar – for example if you are owed $100,000 and the liquidation yields a payout of 11c/$, you will receive $11,000.

Will I receive any money?

If the sale of the company’s assets are sufficient to pay all debts, you may recover some of your debt. However, this is often not the case. There is a specific order that must be followed in respect to a liquidation. Once it is time to distribute the funds, the Liquidators costs are paid first. From there, secured creditors, including employees outstanding wages and entitlements are paid. If there are any residual funds, the unsecured creditors receive a payment as a dividend.

If you have a debt owing by a company that is in liquidation, we encourage you to contact our experienced commercial law team.