Debt Recovery can be a challenge for businesses of all sizes and across all industries. A wide range of Debt Recovery options are available. In this guide we discuss that range of options to help you decide what you can do if your customer isn’t paying you.

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    How to recover corporate debt

    Corporate debts can range in value from a few dollars up to millions of dollars or more. They may or may not be subject to dispute and can be due from customers that are sole traders (individuals) or companies.

    Broadly speaking, there are 2 Debt Recovery pathways. These are:

    1. Informal Debt Recovery paths, and
    2. Formal Debt Recovery paths

    Informal pathways seek to avoid or minimise legal costs whilst formal pathways necessarily involve engagement of lawyers and/or insolvency professionals. The objective is always to recover overdue debts as effectively and efficiently as possible.

    If that can’t be achieved through informal pathways, the next decision is whether to proceed with a formal pathway and have the debtor liquidated (if it’s a company) or bankrupted (if it’s a person) in order to recover some of the debt value.


    My customer isn’t paying me. What should I do?

    There are lots of paths you can go down to recover money owing to you from a non-paying customer. The best path to go down will depend on a few things:

    • Your relationship with the customer
    • The amount they owe you
    • What it is they owe you for
    • Why aren’t they paying you (as far as you know)
    • What’s the likely best outcome possible and what are you going to be satisfied with

    These things will determine the recovery path that offers the best result for you – bearing in mind that the best result may not always be 100% recovery of what you are owed. In this guide we will talk about the paths available to recover money you are owed and how the things mentioned above help to decide which is the best way for you to go.

    What’s Debt Recovery?

    Accountants and Lawyers call the process Debt Recovery – and will talk about:

    • The money owed to you as the Debt
    • You, being owed the money, as the Creditor and
    • Your customer, that owes you the money, as the Debtor

    There are 2 main Debt Recovery pathways:

    • Informal Debt Recovery – which seeks to avoid or minimise legal processes (and costs)
    • Formal Debt Recovery – involves engaging a lawyer to take legal action to recover the debt

    It may be that you start going down one path but then switch paths along the way.  

    Your relationship with the Customer is an important consideration in determining a Debt Recovery path

    It is important to think about your relationship with the Customer when you are dealing with debt recovery. Here are a few things to consider:

    Has your relationship with the non-paying Customer been long-term or short?

    A long-term relationship will give you the benefit of a trading history and a history of how they have conducted their account over the years. Have they had a history of slow payment, or periods of slow pay – perhaps seasonal? Is the current non-payment very much out of character? You will also be more likely to become aware of changes in their business, like departures of long-term staff, the loss of a big client, an unsuccessful venture or a sudden drop in orders. Any of these things may represent ‘Red Flags’ in terms of possible financial problems within their business and, in turn, may be good reason to ‘go hard and go early’ with your Debt Recovery actions. A short-term relationship won’t generally allow for the early identification of these types of Red Flags, so other factors would need to be considered.

    How important is the Customer to your Business?

    The Debt Recovery path is often more complicated if the Customer represents an important part of your business – or worse, is critical to your business. Perhaps they account for a significant proportion of your total sales. This situation would, of course, require a carefully considered Debt Recovery strategy.

    How important are you to your Customer’s business?

    It may be that the above situation is flipped, and the goods or services you supply to your Customer are important – or even critical – to their business. You may be a sole supplier of critical components or services. This situation often gives you a broader range of options and potential extra leverage in resolving the Debt Recovery problem. Caution would still need to be taken to guard against any payment received being targeted as an Undue Preference if the Customer ended up in liquidation.

    How much does your Customer owe you?

    Not surprisingly, the amount of the debt is also an important consideration in determining your Debt recovery actions. When you have been let down by a customer due to non-payment of a debt, it is easy to lose sight of the commercial ‘big picture’. The time spent by you and your staff in chasing payment represents a cost to your business. Depending on how much you are chasing, there will be a point in time when it becomes uncommercial to continue to spend time on the matter. A similar mind-set should also apply to the out-of-pocket costs, such as legals, you are prepared to incur in chasing the debt. The amount of the debt is also relevant to the Formal Debt Recovery paths that may be available to you. For example, the Corporations Act (Section 459E) provides that a creditor may serve a statutory demand on a company provided that the amount of the debt is more than the statutory minimum (presently $2,000). If uncontested, an unanswered creditor’s statutory demand can lead to the debtor company being wound up – in other words, it can be placed into liquidation.

    Why aren’t they paying?

    The next important thing to consider in deciding your appropriate Debt recovery action is ‘why aren’t they paying?’ The debtor’s reasons for not paying are not always apparent, but you may get some clues. A genuine dispute – The debtor is not paying because they believe, and have notified you, there is a genuine dispute surrounding the existence or amount of the debt. Any such genuine disputes should be investigated and responded to prior to embarking on any Formal Debt recovery actions. In Insolvency Solutions Group’s experience, to proceed with Debt recovery action despite the existence of an unresolved genuine dispute is an unsatisfactory way to resolve the matter. If there is genuine disagreement regarding the basis of the dispute, a more productive process would be to agree an independent review of the transaction. Insolvency Solutions Group can help in these matters. A non-genuine dispute – The debtor raises a dispute (or series of disputes) that you believe, and have documentary evidence to prove, are baseless and without any merit whatsoever. Such non-genuine disputes can be used as a stalling tactic and/or to mask the real reason for non-payment – being, in all likelihood, an inability to pay. Even though your view may be that that the dispute is clearly non-genuine, it is important to respond thoroughly to ‘knock their claim on the head’ and allow you to get on with Formal Recovery action without delay. A failure to thoroughly respond in a timely manner may compromise future legal action. Reasons unknown – Despite you best efforts, the debtor has not offered any reason why they haven’t paid. Instead, the debtor has:

    • Been difficult to contact, failing to return messages
    • Offered trivial excuses such as staff absences or the like
    • Claims invoices have not been received and makes repeated requests for copies
    • Gives undertakings to pay by a date, and then fails to comply with those undertakings
    • Blames a problem with their bank processing

    Any of these responses, if persisting, may represent ‘Red Flags’ in terms of possible financial problems within their business and, in turn, may be good reason to ‘go hard and go early’ with your Debt Recovery actions.

    Insolvency Solutions Group can assist you if an unpaid debt is putting your business under serious financial pressure

    All too often, it is Insolvency Solutions Group’s experience that, long delays chasing a major debtor for monies owed give rise to serious cashflow problems for the creditor and end up being the cause of the failure and liquidation of the creditor’s business. Some unscrupulous debtors may even look to ‘drag out’ the matter as a deliberate tactic to cause the creditor’s business to fail. If you are concerned about your ability to continue to pay your suppliers, employees, taxes and other obligations as a result of an unpaid debt due, you should seek immediate advice. Insolvency Solutions Group provides a free, 30-minute consultation service to discuss your options. For more details click here.

    What is the difference between Informal Debt Recovery and Formal Debt Recovery?

    Informal debt recovery seeks to recover the debt without incurring legal costs or, at least, to minimise the involvement of lawyers. In practise, Informal debt recovery and Formal debt recovery will usually take the same initial steps. That is, they will start with the issuing of a ‘Final notice to pay within (a defined timeframe)’-type document on your business letterhead. If this notice is unanswered, the next steps may vary depending on the path you choose to go down.

    What are the key elements of Informal Debt Recovery?

    Informal debt recovery seeks to recover the debt without incurring legal costs or, at least, to minimise the involvement of lawyers. Some of the key elements of Informal Debt Recovery strategy include:

    • Maintaining cordial and open dialogue with the debtor
    • Gaining an understanding of the reasons for the overdue payment
    • Exploring options to assist the debtor and, at the same time, ensuring a satisfactory recovery is achieved. This might include agreements to:
      • Receive payment by instalments
      • Accept less than the overdue amount in full settlement of the debt
    • Where the debt is subject to a genuine dispute, both parties agree to attend a Voluntary Mediation.

    There is always a possibility that, despite your best efforts, the Informal Debt Recovery process will ‘go off the rails’, at which point it may be time to call your lawyer.

    What are the key elements of Formal Debt Recovery?

    A Formal Debt Recovery path (where the debtor is a company) will generally follow these steps (assuming the debt remains unpaid prior to each step):

    • Final notice to pay by a given date is issued on your letterhead. To include a statement that failure to pay will result in legal recovery action being commenced.
    • Instructions are given to your lawyers to commence formal recovery action – attaching all supporting documents. From this point your lawyers will manage the further steps.
    • Application is made to Court for a Judgement order. If the Court sees fit to make this Order (after considering any disputes raised by the debtor or anything else) the debt becomes a Judgement debt. There are various ways that payment of a Judgement debt can be ‘enforced’. Some of these are discussed in the Layperson’s guide to Debt Recovery, provided below. In this discussion, we assume the plan is to proceed to have the company liquidated.
    • A Creditors Statutory Demand is prepared by your lawyers and issued to the debtor, requiring payment of the Judgement debt within 21 days.
    • The unpaid Creditors Statutory Demand is used as the basis for a further application to be made to Court for an Order that the Company be wound up and that a liquidator be appointed. The debtor will have an opportunity to make applications to the Court if they want to avoid liquidation.
    • If the Court so decides, an Order is made that the debtor company is wound up and that a liquidator is appointed. The order will record the date of the winding up order and will identify the person appointed as liquidator.

    How important is good record-keeping?

    Whatever Debt Recovery actions are commenced, a good result will always rely, in part, on being able to produce records that clearly show:

    • the debtor had ordered the goods or services
    • the goods were supplied or the services were rendered
    • the debt is due and payable to you
    • the debt hasn’t already been paid

    Good record-keeping policies and practices within your business are essential.

    What are the Pro’s and Con’s of Informal Debt Recovery versus Formal Debt Recovery?

    There are some clear Pro’s and Con’s for both Informal Debt Recovery and Formal Debt Recovery

    Consideration Informal Debt Recovery Formal Debt Recovery  
    Customer relationship Pro: Offers best chance to preserve the business relationship Con: Tends to be terminal as far as the relationship is concerned
    Legal costs Pro: Avoids legal costs associated with formal notifications and Court processes Con: Can be hefty, depending on complexity and defences raised – but ultimately may be recoverable by Court Order
    Flexibility Pro: Offers flexibility in striking a deal to resolve the debt Con: Legal processes require strict compliance – unless formal mediation is agreed to
    Risk of failure Con: Always a possibility that negotiations can ‘go off the rails’ leaving you back at square one Pro: The legal process is determined by the law and the Courts, so no risk of the process failing
    Risk of default Con: Even though a settlement agreement is entered into, the debtor may subsequently default on complying with the terms of the agreement. Risk can be mitigated by having a well drafted agreement Pro: Legal outcome will be final
    Liquidator can investigate the debtor’s affairs Con: Doesn’t usually allow for an independent investigation into the debtor’s financial position or conduct Pro: If the formal process doesn’t result in debt recovery, a liquidator will be appointed with powers to investigate the debtor’s conduct and search for undisclosed assets or other recovery actions


    What is a Mediation?

    Mediation is a process where the parties involved in a dispute – frequently a dispute about moneys owing – will get together to try to come to deal to resolve the matter. The actual processes of a mediation can vary, depending on the circumstances, but they have common elements:

    • It’s a face-to-face meeting between everyone involved in the dispute
    • The objective is to bring everyone together so they can come to their own solution without the need to go to Court and have the Court decide the matter
    • An independent person, called the Mediator, attends to keep the meeting on track and to assist the parties to identify and assess options and to help the negotiation process.
    • Mediation can be a voluntary between the parties, as part of an Informal Debt Recovery process, or a Court might direct the parties to attend a formal mediation after legal action has commenced, as part of a Formal Debt Recovery process.
    • In a voluntary mediation, the parties will need to find and agree upon who will be Mediator. If it’s a formal mediation, the Mediator will usually be an appropriately qualified lawyer and will be appointed by the Court

    What are the costs of a mediation?

    In a voluntary mediation the Mediator is usually paid for his/her time. The rate would be agreed between the parties and the mediator ‘up front’. If it’s a Court ordered mediation the Mediator’s fee will be prescribed by the Court, usually on an hourly rate, and must be paid equally between the parties. There will also be a fee for the use of the mediation room. In a voluntary mediation the parties might agree for their lawyers to attend the mediation, in which case legal fees would be incurred. In a Court ordered mediation the process requires the parties to bring along their lawyers.

    What are the benefits of Mediations?

    Mediations are particularly suited to complex disputes involving large sums of money, but all mediations offer benefits:

    • Dispute can be resolved quickly
    • Costs associated with protracted legal processes are avoided
    • Offers a great deal of flexibility around the terms of a settlement agreement
    • Both sides can come away feeling satisfied with the outcome, unlike a Court judgement where there’s a ‘winner’ and a ‘loser’.
    • Offers a better chance of business relationships being maintained down the track.

    What is important for a successful mediation?

    Mediations only work if both sides attend the process in good faith and have a genuine intention to negotiate to get the matter resolved.

    Should I use a Debt Collector?

    A Debt collector is a person or agency that can be engaged to act on your behalf to chase and recover debts due to you. They are sometimes called Mercantile agents. Things that a Debt collector might do on your behalf include:

    • Issuing demands for payment for unpaid and overdue invoices
    • Negotiating reapayment arrangements over time
    • Chasing up payments due under payment arrangements
    • Frequent contact to slow paying customers to get commitments to pay and tio follow up those commitments
    • Receiving payment and sending the funds to you, usually minus their agreed fee for service.
    • If debts remain unpaid, to put together the package of documents that would be needed to start legal proceedings

    What situations are Debt collection services best suited?

    In our opinion, Debt collection services are best suited to situations where:

    • The business tends to issue a high volume of invoices for small amounts
    • The transactions involved are straight forward, such as the order and delivery of goods – so they don’t tend to be subject to dispute
    • The business is small or medium sized and prefers to outsource the process rather than employ their own staff to do it

    What other benefits are there to using a Debt Collection service?

    An often-overlooked benefit of engaging a Debt collector, in our view, is that it can help maintain customer relationships. Generally, the business world recognises that a Debt collector is undertaking a necessary business process and will deal with them accordingly. Their engagement puts an intermediary between you (or your staff) and your customer for the ‘unpleasant’ purpose of chasing money, leaving you to deal with the more positive aspects of the business relationship – until such time as you decide to escalate things.

    When don’t Debt collection services work so well?

    In our opinion, Debt collection services tend not to work so well where the debt is subject to dispute and/or involves a complicated or large transaction. In these circumstances the Debt collector may itself complicate, and even delay, the debt recovery process because it ends up having to simply convey disputes and/or requests for documents raised by the Customer to you and then pass on your response to the Customer. In these situations, it can often be better to deal directly with your Customer.

    Are there any rules about how Debt Collectors should conduct themselves?

    Debt collectors must always conduct themselves fairly and must never:

    • Use physical force or threats against the debtor – or any person associated with the debtor
    • Use an unreasonable level of harassment – like calling debtors repeatedly over unreasonably short intervals of time or calling at all hours of the night
    • Use misleading tactics or try to trick a debtor
    • Take unfair advantage of a vulnerable person, such as an elderly person

    This sort of conduct is strictly prohibited under Australian Law – whether it be a Debt Collector or the Debtor themselves. Debtors should always be treated with respect, fairness and courtesy.

    What might be a good reason to seek to have my debtor liquidated?

    In our opinion, any of the following may be good reasons to seek to have your debtor liquidated:

    • You have exhausted all reasonable efforts to get paid
    • You become aware that other suppliers are also chasing your debtor for payments
    • There have been some unusual recent changes to your debtor’s business, like:
      • a (sometimes subtle) change to their business name
      • a change to their Australian Company Number (ACN)
      • a sudden relocation of their place of business
      • significant and familiar items of plant and equipment seem to have disappeared from their place of business
      • maybe you have got word that they have told their customers to pay to a new bank account
      • key people you usually deal with don’t seem to be around anymore – or aren’t contactable

    In our opinion, if you feel your efforts to get paid have hit a brick wall and you can tick off more than one of the above, you would be well justified to take immediate steps to have your debtor liquidated.

    What does it mean to be liquidated?

    If your non-paying customer (debtor) is a company (and is not a sole trader using a business name) ‘to be liquidated’ means the company has been ‘wound up’ and a liquidator has been appointed to the company. The ‘winding up’ of a company and appointment of a liquidator is made by an Order of the Court following an application to the Court by a Creditor. These applications are prepared by lawyers acting for a creditor.

    How does liquidation happen?

    For a Court to make an order that the company be wound up and for a liquidator to be appointed, it must be satisfied that the company is insolvent and that it is appropriate to make such an Order. In practical terms, the Court will consider, amongst other things:

    • Whether or not formal demand for payment (known as a Creditor’s Statutory Demand) has been properly served on the Company
    • Whether or not the period of time for response to the Creditor’s Statutory Demand (of 21 days) has elapsed
    • Whether or not the debt remains unpaid
    • Any submissions made to the Court by the creditor, or its lawyers

    What is a voluntary liquidation?

    A liquidation can also happen ‘voluntarily’, by the debtor itself. In this case, the director(s) and shareholder(s) of the debtor company each hold meetings and make formal ‘resolutions’ that the company be wound up and a liquidator be appointed. The appointment is also considered and, if agreed, confirmed by a meeting of the company’s creditors.(Still true?) This is called a ‘Creditors voluntary liquidation’. Click here for more information on Creditors Voluntary Liquidations.

    Who can be appointed as Liquidator by a Court?

    For someone to be appointed as Liquidator to a company by the Court, that person must:

    • Be a qualified accountant (or lawyer?) with specialist skills and experience in liquidations
    • Be a Registered liquidator on the records of the Australian Securities and Investments Commission (ASIC) and be an approved Liquidator for the purposes of undertaking Court liquidations (?)
    • Have supplied to the Court a written ‘Consent to Act’ as liquidator of the company, prior to his/her appointment

    Strict independence rules also apply to the appointment of liquidators to ensure, as best as possible, that the person appointed has no ‘conflicts of interest’ in conducting the liquidation. For example, a person cannot be appointed liquidator if that person was a relative of any of the company’s directors or had a long-time personal or business relationship with any director.

    What happens when a company is liquidated?

    Four (4) main things happen when a company is liquidated:

    1. Directors’ powers are removed – The powers of the director(s) to act on behalf of the company are immediately removed once at liquidator is appointed. For example, directors can no longer operate company bank accounts or authorise the company to enter into any business transactions. Instead, the law imposes new requirements on the directors to:
      1. provide information to the liquidator
      2. deliver up company records to the liquidator
      3. deliver up all ‘property’ belonging to the company. The word ‘property’, as used here, means (generally speaking) all things owned by the company, including, for example, money owing to the company – and not just land and buildings.
      4. Assist the liquidator, as he/she requires, in relation to the liquidation


    1. Liquidator takes possession of assets and will look to convert those assets to cash – The liquidator will identify, take possession and/or control of the company’s assets, which may include:
      1. Land and buildings
      2. Plant and equipment
      3. Motor vehicles
      4. Trade debtors
      5. Cash at bank (bank accounts)
      6. Loans due to the company
      7. Intellectual property, like licences or patents

    This process might involve a sale of the business as a whole or, if that is not feasible, sales of individual assets and collection of monies due to the company – from trade debtors or loans.

    1. Liquidator undertakes investigations – The Liquidator will undertake investigations, into 3 main areas:
      1. Whether there are any ‘hidden’ assets – being assets or property owned by the Company that the directors didn’t tell the liquidator about. Most frequently, in our experience, directors’ and/or shareholders’ loans can fall under the category of hidden assets.
      2. Whether there are any Recovery actions available – being actions available to the Liquidator to recover money from the directors, shareholders or other persons or companies that have had dealings with the company.

    Most types of Recovery actions arise from sections of Australian Corporations Law that deal specifically with liquidations and insolvency, and can include a broad range of things, but most commonly:

    1. Voidable preferences – which, generally speaking, deals with a circumstance where director(s) have given one or more of their suppliers preferential treatment by paying them – in the period leading up to the liquidation, at a time they knew their company was struggling and couldn’t pay everyone it owed money to. Quite often, in our experience, the ‘preferred’ suppliers will be critical suppliers or suppliers that hold a ‘director’s personal guarantee’ for monies due to them.

    In some circumstances, the liquidator has powers to recover the amount of the ‘preferential’ payment(s) from the ‘preferred’ supplier.

    1. Insolvent trading claims – which, generally speaking, refers to claims against directors in circumstances where they allowed a company to continue to trade and to rack up debts at a time they knew, or should have known, that there was little or no prospect that these new debts would ever get paid. If this can be proven (which is quite a complex task), the directors can find themselves personally liable to pay to the company (now in liquidation) an amount that equals the total amount of the ‘new’ debts incurred
    • Sale of assets at undervalue – which, generally speaking, refers to a scenario where, in the period leading up to the liquidation and at a time the director(s) knew the company was going to collapse, they decided to sell-off property of the company at a price well below the fair market value of those items. Some all-to-common examples, in our experience are sales of motor vehicles to family members or friends or, at the other end of the scale, sales of the whole business at under its fair market value. Again, if proven, directors can be personally liable for the amount of the ‘loss’ sustained by the company because of the undervalue sale of its assets.
    1. Whether the directors or officers of the company have committed any offences of the Corporations Act – If the Liquidator’s investigations identify any conduct by the directors or officers of the company that he/she suspects may constitute an offence under the provisions Corporations Act – or a breach of their responsibilities under that Act, the Liquidator will prepare a report to ASIC setting out information about those suspected offences or breaches.

    Most frequently, in our experience, offences and/or breaches that are subject to Liquidators’ reports to ASIC concern suspected breaches by the directors of their statutory duties as directors to act with due care, in good faith and/or in the company’s best interest. Something like a sale of the business at undervalue, if proven, would likely represent a breach of director’s duties under the Act. From time to time, ASIC may engage the liquidator to provide further assistance in relation to matters raised in their report to ASIC. This may lead to prosecution of directors.

    1. Pay a distribution to creditors (if there is any money to distribute) and finalise the liquidation

    After attending to each of 3 abovementioned general tasks, the Liquidator’s final tasks are:

    1. to distribute any available funds in the liquidation to creditors – as per the distribution procedures set out in the Corporations Act and Regulations, and then
    2. to finalise the liquidation – which ultimately results in the company being ‘deregistered’.

    How do I recover debts from a company that has been liquidated?

    It is often the case, that if your customer has stopped paying you, they have also stopped paying other creditors – and, the next thing you know, one of those other creditors has succeeded in having your customer ‘wound up’ and a liquidator appointed, by an order of the Court.

    What happens to my Debt recovery action if a liquidator is appointed?

    One immediate effect of the appointment of a liquidator to a company is that all other legal recovery actions that have been commenced by other creditors against the company are stopped. (The only exception to this would be if a creditor applied successfully to the Court to allow them to continue their legal action – for some special reason. But this is uncommon.) Instead of continuing with their own recovery actions, creditors of a liquidated company are required to submit details of their claim against the company to the liquidator – by providing to the liquidator a ‘Formal proof of debt’ form. The liquidator will keep a register of all such creditors’ claims against the company.

    When will I get paid by the liquidator?

    A liquidator will pay a ‘dividend’ payment to the company’s creditors if, and when, the liquidator has recovered enough funds, from the sale of assets or from other recoveries. There is no strict timeframe given for liquidators to make payments to creditors. They are required to make payment, generally speaking, as soon as they have sufficient funds to allow for a ‘worthwhile’ amount to be paid and/or where they have done everything else that needed to be done in the liquidation. Depending on how complex the liquidation is, the liquidator may make one or more ‘interim’ dividend payments to creditors along the way and then make a final payment or they may just make a single ‘first and final’ payment. Timing of dividend payments to creditors can vary. In our experience, the period can be as short as 3 months after the company was liquidated or up to several years, for some large and complex liquidations.

    How does the liquidator know I am a creditor?

    One of the liquidator’s first tasks is to try to identify all creditors and potential creditors. The liquidator will usually prepare this list from:

    • Financial records held by the company
    • A list of creditors prepared by the directors
    • Claims submitted to the company or to the liquidator’s office
    • Creditors or suspected creditors identified from the liquidator’s investigations

    Before the liquidator can make any payments to creditors, she/he needs to give all creditors, or anyone they think might be a creditor, an opportunity to submit details of what moneys they claim to be owed. In liquidation terminology, the liquidator will give notice to creditors or suspected creditors to submit a ‘Formal proof of debt’. The liquidator must then decide whether to ‘accept’ or ‘reject’ the claims. If the liquidator decides to reject a claim (either for the full amount or for just part of the amount), he/she needs to let the person lodging the claim know so they have an opportunity to dispute the liquidator’s decision. Once any disputed claims are resolved, the liquidator will proceed with the dividend payment. The payments are made on a ‘cents per dollar owed’ basis, other than for some special categories of creditors that are given priority over usual trade (or ‘unsecured’ creditors).

    As a creditor of a liquidated company, what should I expect to receive from the liquidator?

    If you have the misfortune to get caught up in a liquidation as a creditor, you will (should) receive a package of documents from the liquidator that includes, amongst other things, a notice of the liquidation and an ‘Information Sheet for Creditors’. That information sheet describes, in some detail, your rights as a creditor in the liquidation, including what you should expect to receive from the liquidator. In summary, the things you should expect to receive include:

    • The initial notice of appointment and standard package of documents (within a few days of appointment)
    • A report from the liquidator, generally referred to as the ‘3-month report’, that provides information about the liquidator’s initial actions and investigations
    • Further reportsfrom time to time, depending on the complexity of the liquidation, to keep creditors reasonably informed of the liquidator’s progress
    • Notices of meetings of creditors – usually sent with the liquidator’s reports to creditors

    What can I do (as a creditor) if I am dissatisfied with the Liquidator?

    There may be times when you (as a creditor) become dissatisfied with the Liquidator. Your dissatisfaction may be a result of:

    • Questions about transactions entered into by the l For example, a sale of business or a sale of property, plant or equipment
    • Slow progress of the liquidation
    • Unsatisfactory responses to enquiries
    • Failure to go ahead with legal actionthat has been identified in the liquidator’s reports – which could lead to moneys being recovered for creditors. (Sometimes liquidators will have no money available to pay for legal action.)
    • The level of fees being charged by the liquidator and/or by lawyers or other advisers engaged by the liquidator

    Depending on the type of liquidation, there are a range of rights provided to creditors, including rights to:

    • Provide information to the liquidator that might assist their investigations
    • Access financial records of the company
    • Request specific information from the liquidator
    • Request a report be provided and/or a meeting of creditors to be called
    • Inspect some records of the liquidator
    • Seek the appointment of an independent liquidator to review some aspect(s) of the liquidation, known as a ‘Reviewing Liquidator’
    • Remove and replace a liquidator

    These rights are subject to some safeguards, such as, that the rights are being exercised for a reasonable purpose, will not be unreasonably costly to comply with,will not cause the liquidator to break any other laws or regulations and are being exercised in good faith.

    How can I have a liquidator replaced?

    Creditors have the right to remove and replace a liquidator. To do this:

    • A meeting of creditors needs to be called. (If the current liquidator has no money to pay the costs of the meeting, the creditor(s) requesting the meeting may need to pay those costs.)
    • The proposed replacement liquidator needs to provide a written ‘Consent to act’ as Liquidator – and must make a declaration regarding his/her independence and ability to act as liquidator
    • A resolution to remove and replace the liquidator must be passed at the meeting

    There are a range of reasons that creditors may seek to have the liquidator removed and replaced. These might include:

    • Dissatisfaction with some aspect of the liquidator’s performance
    • An opinion that another liquidator may be better placed to undertake the liquidation – maybe due to geographic location, resources and/or specific industry experience
    • The current liquidator decidesnot to proceed with a legal action due to a lack of funds to meet the legal costs and/or because they consider the risks of the action to be unacceptable – whereas another liquidator may be prepared to run the action.

    Remember, it is the Liquidator’s job to always look after the best interests of the company’s creditors. If you have any concerns that a liquidator may not be doing that job properly, you should raise your concerns with the liquidator and, if still dissatisfied, discuss the situation with your lawyer, another liquidator and/or the Australian corporate regulator, ASIC.

    The law around Debt recovery can be complex and uses a multitude of terms that can be confusing, particularly if it’s an area you are fortunate enough to rarely encounter. Your lawyer is best placed to provide a detailed technical and legal explanation of the terminology used in this space. To help you navigate your way around Debt recovery and Liquidations, we have prepared a ‘Layperson’s general guide to Debt recovery terminology’. The guide includes some of the more common terms you may come across. For the most part, these terms refer to different ways you can go about ‘enforcing’ your rights to get your debt paid. This guide should not be taken as legal advice or relied upon for the purposes of any legal action.

    A Layperson’s general guide to Debt recovery terminology

    Term General meaning
    Judgement debt In simple terms, a debt becomes a Judgement debt if it is subject to a Court order that requires a person or company (the debtor) to pay the amount of the debt to another person or company (the creditor). Usually, the Court will allow 28 days for the Judgement debt to be paid. Even if the debtor fails to pay the Judgement debt, it is still a good thing to have because it eliminates, as far as the Court is concerned, any future arguments about the existence or amount of the debt. As a result, any future enforcement actions will be simpler and, hopefully, cheaper to run. A Judgement debt can be used in a range of enforcement actions, such as a Charging order, Warrant of sale, Garnishee order, Writ of execution, Creditor’s Statutory Demand, Bankruptcy proceedings or an Application for the winding up of a company, amongst other things.
    Investigation summons An Investigation summons applies where the debtor is a person (not a company) – and your claim is less than $12,000. If you have a claim less than this amount then, before you can go ahead with any other legal enforcement action, you must apply for an Investigation Summons to be issued. The Investigation Summons requires the Court Sheriff to personally attend on the debtor at his or her place of residence (or work) and serve him or her with a Summons to attend Court. Once at Court, the debtor is required to complete a financial statement disclosing his/her financial position. The Magistrate will then assess the debtor’s financial statement and make a payment order based on what the debtor can afford. For example, the Magistrate may make an order for the debtor to pay by monthly instalments.
    Examination summons Applies where the debtor is a person. If a repayment order is made against the debtor, because of an Investigation Summons [Insert link], and the debtor fails to pay at least two instalments that were due under the order, then the creditor can apply for an Examination Summons to be issued to the debtor. This means the debtor will have to attend an examination hearing to explain why they failed to make the payments and/or to have a new repayment order made. If the debtor can’t provide a valid reason why they didn’t pay or refuses to recommence payments or make payment of the debt, then the Court may make an order for the debtor to be imprisoned.
    Charging order A Charging order is an enforcement option in circumstances where your debtor owns property (land). If that is the case, you can apply to the Court for an Order to ‘charge’ the property – which means that your claim against the debtor is recorded as a ‘charge’ on the title documents of that property. Once that charge is created, the debtor cannot sell, or otherwise deal with, the property until the debt has been paid. Things can get complicated if there are other ‘charges’ already on the property.
    Warrant of sale A Warrant of Sale can be issued by an Order of the Court – which authorizes the Court Sheriff to attend on the debtor’s private residence to take possession of, and sell, property owned by the debtor in order to raise enough money to satisfy a judgment debt. Some personal items, like clothing and necessary household items, cannot be seized under a Warrant of sale.
    Garnishee order A Garnishee Order is an order by the Court to a third-party, being a person or a company, that owes money to your debtor. The order will direct the Third-party to ‘re-direct’ payment of the money it owes to your debtor, directly to you. For example, the Tax Office might cause a Garnishee order to be issued to a person’s employer, requiring that employer to re-direct a portion of the employee’s wages to the Tax Office to pay down an Income tax debt.
    Writ of execution A Writ of Execution is another way to enforce a Judgment debt – and can be used if the debtor is a person or a company. The writ is delivered to the Sheriff, who will then attend a given address to take items belonging to the debtor to be sold by public auction – with funds raised paid to the creditor to satisfy their debt. A Writ of execution can be issues specifically against goods or against property.
    Creditor’s Statutory demand A Creditor’s Statutory demand is a formal notice for payment that can be issued by a creditor and served on a debtor, provided the debtor is a company and it owes more than $2,000. This notice is served under Section 459E of the Corporations Act and must be in a prescribed form (Form 509H). The notice gives the debtor 21 days to pay. Failure to pay (or come to a satisfactory deal) within 21 days means the debtor will be presumed, as far as the law is concerned, to be ‘insolvent’ – which, in turn, means the creditor can use the non-payment as the basis for a Winding up application to be made against the debtor.   A word of caution: If you (as the creditor) have already been to Court to get a Judgement debt, then the only way the debtor can resolve the issue is to pay up or agree a payment plan. However, if you don’t hold a Judgement debt, there it is still the possibility that the debtor will dispute the debt. If a Court is satisfied there is a genuine dispute about the debt it may dismiss the Demand – in which case, you might be liable for legal costs.
    Winding up application A Winding up application is an application made to a court to wind-up (or liquidate) an insolvent company. These applications are usually made, as a final resort, by a creditor that has been unsuccessfully chasing payment from the company. A creditor making a Winding up application can rely on an unpaid Creditors Statutory demand as proof that the debtor company is insolvent. If the application is successful, the Court may make an order that the company be wound up and that a liquidator be appointed to the company.


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