What Creditors Can Expect When Winding Up ACompany

When a company enters liquidation, creditors are left uncertain. Many are unsure of whether they’ll be repaid or how the process even works.

This article explains how company liquidation works for creditors, what responsibilities you have and how HLB Mann Judd Insolvency WA manages the process to ensure fairness and protect your rights.

For more information, contact our office.

Three Types of Liquidation and How They Begin

There are three main pathways to liquidation, each with different implications for creditors.

A Creditors’ Voluntary Liquidation or Winding Up (CVL) is initiated by by directors when the business is no longer viable and is the most common form of liquidation in Australia. Court Liquidations are ordered by the Supreme Court after a creditor applies for the company to be liquidated. Finally, a Members’ Voluntary Liquidation (MVL) sees a solvent company wound up by its shareholders, often without any unpaid creditors.

Regardless of the type of liquidation, once the liquidator is appointed the company ceases trading and its assets are controlled by the liquidator, who acts on behalf of all creditors.

The Role of the Liquidator

The liquidator is an independent figure with the responsibility of realising company assets and distributing the available funds. They will also conduct all reporting to ASIC, creditors and other stakeholders.

Independent is the key word. Liquidators cannot legally advocate for any one director or creditor.

Your Rights as a Creditor

As a creditor, you have three key entitlements during liquidation.

1. Notification and Communication

You will be notified once the business has formally entered liquidation. Along with this will come an invitation to submit a proof of debt and a timeline for the liquidation process and estimated returns.

For larger, more complex liquidations, the liquidator may also invite you to attend creditor meetings and vote on certain matters.

2. Proof of Debt

A proof of debt form is your key to being eligible for distribution.

The liquidator will review the claim and its supporting documentation to either accept it, reject it, or request further evidence.

NOTE: If you are unsure how to complete this form and what supporting documents you should provide, contact our team for assistance.

3. Voting Rights

As mentioned above, creditors are occasionally asked to convene and vote on issues like liquidator fees and whether to form a committee of inspection.

As a general rule, a creditor’s voting power is proportional to the amount they’re owed.

Priority of Payments

Few insolvent companies are able to repay debts in full. As such, the liquidator will distribute funds according to a strict priority order outlined in the Corporations Act:

1. Secured creditors
2. Employee entitlements
3. Unsecured creditors
4. Shareholders

Shareholders will only receive distribution if a surplus remains, which is rare.

NOTE: Where the company cannot cover entitlements, employees may also be eligible for support under the Fair Entitlements Guarantee.

How Much Will You Recover as an Unsecured Creditor?

This depends on several factors. Returns can be affected by the value of realised assets, the extent of secured debts and the cost of conducting the liquidation. The liquidator will also consider the number and value of creditor claims and any potential recoveries from voidable transactions.

When winding up a company, liquidators must pursue all viable avenues in their attempts to maximise the return to creditors. Nonetheless, unsecured creditors often receive little more than a partial repayment, if any at all.

5 Steps to Take as an Unsecured Creditor

If you’re a creditor of a company in liquidation, here are five steps you can take to protect your
interests:

1. Respond promptly to any correspondence from the liquidator
2. Lodge your proof of debt with supporting documentation as soon as possible
3. Attend any creditors’ meetings
4. Ask our team questions if you’re unsure about your rights or the process
5. Seek advice if you believe you’ve been unfairly treated or overlooked

HLB Mann Judd Insolvency WA welcomes calls from creditors in liquidations we are controlling. Our team will provide straightforward, timely updates with clear instructions for participating in the process.

Our Approach to Creditor Communication

We recognise that creditors face a raft of stress and uncertainty when a business fails. Whether you’re a landlord, employee or trade supplier, HLB Mann Judd Insolvency WA will provide transparent communication, thorough reporting and fair distributions.

Director Investigations and Recoveries

As an unsecured creditor, it is possible you have noticed signs of improper conduct by directors. Through investigation and recovery, it is possible for the liquidator to recover amounts you feel were entitled to you.

Recognising that a commercial failure doesn’t always come with wrongdoing, we conduct these investigations with an additional level of diligence and respect. Nonetheless, HLB Mann Judd will ensure all director actions are legal and allow creditor returns to be maximised.

Concerned About Your Position as an Unsecured Creditor? Contact Our Team for Assistance

If you have received notice as a creditor, HLB Mann Judd Insolvency WA would be happy to assist.

To speak with a member of our team, click here.