Australia: Can you recover the amounts owed to you by a company in liquidation?
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It may be worrying for you that a business that owes you money goes into liquidation. Despite this, there are options to collect some or even all of the debt.
Am I a creditor?
If money is owed to you by a business, you are considered a âcreditorâ. There are two types of creditors:
- Secured Creditors – These creditors have a âchargeâ on the assets of the business. For example, a bank may have a charge on a property that is subject to a mortgage.
- Unsecured creditors – have no fees and therefore have no collateral to fall back on if the loan is in default.
The category you belong to determines which order you will be paid for.
How to recover the debt?
The first step in collecting a debt is to contact the liquidator. A liquidator is appointed to collect all the assets of the company and settle all claims before dissolving the company. To prove that the money is actually owed to you, 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 have certain rights as a creditor. This includes the right to vote at any meeting of creditors to determine how much the company can pay them. Typically, liquidation charges you pennies on the dollar – for example, if you owe $ 100,000 and the liquidation results in a payment of $ 11c / $, you will receive $ 11,000.
Will I receive money?
If the sale of the company’s assets is enough to pay off all the debts, you can recover some of your debt. However, this is often not the case. There is a specific order that must be followed with respect to a liquidation. Once it is time to distribute the funds, the liquidator fees are paid first. From there, secured creditors, including wages and unpaid employee rights, are paid. If any residual funds remain, unsecured creditors receive payment in the form of a dividend.
If you have a debt owed by a business in liquidation, we encourage you to contact our experienced team in commercial law.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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