I am owed money by a company that has gone into liquidation. What can I do?

What is liquidation?

Liquidation is the technical term for when a company becomes insolvent. This usually occurs when a company can no longer pay its debts when they fall due and payable. In liquidation, the company will usually sell off what assets it does have to satisfy as many of its debts as possible.

What is the process?

When a company goes into liquidation a liquidator is appointed. The liquidator will review the financial position – in terms of assets and liabilities – of the company. The liquidator will then sell those assets of the company in order to pay off the debts of the company.

The liquidator will also review the financial records of the company to determine if the director/s of the company were managing the company satisfactorily. If the directors were not meeting their management obligations the directors may be sued personally by the liquidator.

What to do if a company that owes you money has gone into liquidation?

If the company owes you money then you are deemed to be a creditor. As soon as a company goes into liquidation a creditor should lodge a proof of debt with the liquidator. A proof of debt is a formal document that must be in a set form.

The proof of debt has the effect of:

1. Notifying the liquidator of the company’s debt to the creditor;
2. Entitling the creditor to be involved and informed of the liquidation process;
3. Entitling the creditor to be paid whatever dividends may become payable during the liquidation process.

Having your debt paid by the liquidator on behalf of the liquidated company is never a certainty. However lodging a proof of debt is an easy way to ensure you are kept informed and are in a position to receive any moneys that may be paid out to creditors.

If you have further questions, please contact us at frank@franklaw.com.au.

This is not legal advice.