A company that owes me money has gone into liquidation

You may be wondering, now that this company has gone into liquidation will I ever get my money? Rest assured, even though you may feel like you are struggling against a behemoth, it is important to be aware of the options available to you.

Once a company owes you money, you then become a creditor of that company. This is typically because you have provided a good or service or made loans. Similarly, an employee owed money for unpaid wages and other entitlements is a creditor. Generally, two types of creditors exist – secured and unsecured creditor.

A secured creditor is someone who has a ‘charge’, such as a mortgage, over some or all of the company’s assets. Lenders usually require a charge over company assets when they provide a loan in order to secure a debt owed by the company. An unsecured creditor is a creditor who does not have a charge over the company’s assets. This distinction determines when and if you’ll be paid.

In order to claim the outstanding debts owed by the company in liquidation, you will need to go through the liquidator to recoup these losses. During the proceedings, the liquidator will notify you if there are likely to be funds available for distribution and will call for formal proof of debt forms to be lodged at least two weeks after the notice. When lodging your claim, you must provide evidence of that debt including relevant invoices and other supporting documents. Otherwise, insufficient proof may lead to rejection of your claim.

Within seven days you will be notified by the liquidator if your claim has been rejected. In this case, if you aren’t satisfied by the decision you should try and resolve the matter with the liquidator. Failing that, you only have 14 days after the notice to appeal the decision via the courts. If the 14 days has lapsed without legal action, then the liquidator’s decision will be final.

Distribution of funds typically follows a hierarchy, whereby the costs of liquidation are paid first, then payments to other secured creditors, including employees. Finally, if there are remaining funds after these payments then the liquidator will pay these to unsecured creditors as a dividend.

A number of clients become disparaged when trying to recoup their debts from the liquidated company when they see a company director still driving around town in a luxury car. Often how directors manage business is via a limited liability company, whereby the company is a separate entity its shareholders and directors. This means that other things considered, the directors and shareholders are not liable for the company’s debts.

Yet, there are still two circumstances where a director may be considered personally liable for the debt. Firstly, if they have given a creditor a “personal guarantee”, whereby if the company cannot pay the debt they will pay for it personally. The other circumstance is if they have breached the corporations, tax or other laws including trading while insolvent. Thus, even though it may be frustrating, if the investigations prove that none of the above are true then the director is not personally liable for your debts and can keep their snazzy new car.

Prominent Brisbane liquidator, Jonathan Paul McLeod, recommends you raising concerns about the company’s financial trouble early to ensure that your interests are protected in the matter. For more information, please contact us at McLeod and Partners today to discuss this matter and more.

Source: Australian Restructuring Insolvency & Turnaround Association (ARITA) Frequently Asked Questions

Source: Australian Securities and Investments Commission (ASIC) Regulatory Resouces