You’ve Just Found Out the Company That Owes You Money Is in Liquidation. Now What?
Getting the call — or worse, finding out through ASIC’s insolvency register — that a company owing you money has gone into liquidation is a gut-punch moment for any business owner. Whether you’re owed $10,000 or $10 million, the steps you take in the next few days can be the difference between recovering something and recovering nothing.
This guide walks you through exactly what happens when a company enters liquidation in Australia, what your rights are as a creditor, and the practical steps you need to take right now.
What Happens When a Company Enters Liquidation?
When a company is placed into liquidation, a licensed insolvency practitioner — known as a liquidator — is appointed to take control of the company. From that point, the directors lose their authority to act on behalf of the company. The liquidator steps in.
The key legal consequence for creditors is the automatic stay (or moratorium). Once liquidation commences, you cannot take fresh legal action against the company to recover your debt without the court’s leave. Existing judgment enforcement also stops. This is not the end of your claim — it simply means the process for recovering what you’re owed shifts from the courts to the liquidation process.
The liquidator’s job is to:
- Take control of the company’s assets
- Investigate the conduct of the directors
- Recover money for creditors (including pursuing insolvent trading claims, voidable transactions, and unfair preferences)
- Distribute funds to creditors in the prescribed priority order
- Deregister the company
Your Rights as a Creditor
As a creditor — someone owed money by the company — you have a set of legally protected rights in the liquidation process:
- Right to lodge a proof of debt: This is your formal claim in the liquidation. Without lodging one, you will not share in any distribution.
- Right to information: The liquidator must provide a report to creditors outlining the company’s affairs, the estimated return to creditors, and the results of their investigations.
- Right to vote: Creditors vote at creditors’ meetings on key decisions, including whether to approve the liquidator’s remuneration and certain transactions.
- Right to appoint a reviewing liquidator: If you believe the liquidator is not acting properly, you can apply to ASIC or the court.
- Right to inspect books and records: With the liquidator’s approval, creditors can inspect the company’s books.
How to Lodge a Proof of Debt
This is the single most important step you can take. A proof of debt is your formal claim for the money owed to you. The relevant form under the Corporations Act 2001 (Cth) is Form 535, available from ASIC’s website.
Your proof of debt must include:
- The amount you are owed (the “provable debt”)
- How the debt arose (contract, invoice, judgment, etc.)
- Supporting documents (invoices, contracts, correspondence, statements of account)
- Whether any security is held over the debt
Deadlines matter. Proofs of debt must usually be lodged before any dividend is declared. In practice, the liquidator will set a “bar date” by which proofs must be received. Missing this date can mean missing the dividend entirely. Lodge early, even if the precise amount is still being calculated — you can amend later.
Send your proof of debt directly to the liquidator by email or post. Keep a copy and get confirmation of receipt.
Secured vs Unsecured Creditors: The Critical Difference
Not all creditors are equal in a liquidation. Your position depends heavily on whether you are secured or unsecured.
Secured creditors hold a charge, mortgage, or other security interest over specific assets of the company (for example, registered on the Personal Property Securities Register (PPSR)). If properly registered, secured creditors can enforce their security independently of the liquidation and are generally paid first from the proceeds of the secured asset.
Unsecured creditors have no security over specific assets. They share in the general pool of assets remaining after secured creditors, liquidation costs, and priority creditors are paid. In most liquidations, unsecured creditors receive little to nothing — but not always.
If you supplied goods under a retention of title (ROT) clause and your goods are still identifiable and unaltered in the company’s possession, you may be able to recover those goods rather than just a monetary claim. Get legal advice on this quickly — assets can be sold by the liquidator before you act.
Can You Still Sue the Company?
Generally, no. Once a company is in liquidation, pursuing fresh litigation against it is stayed. The insolvency process replaces the courts as the mechanism for creditors to enforce their claims against the company.
You can apply to the court for leave to continue or commence proceedings in limited circumstances — for example, where a third party (such as an insurer) is the real defendant. But for most trade creditors, the proof of debt process is the right path.
Important: this does not prevent you from suing the directors personally if they engaged in insolvent trading or other misconduct. This is a separate claim against the individuals, not the company in liquidation. See our article on when directors can be held personally liable.
What Assets Does the Liquidator Recover?
The liquidator’s job is to maximise the pool of assets available to creditors. This includes:
- Existing assets: Cash, inventory, equipment, debtors (money owed to the company), intellectual property, real estate.
- Voidable transactions: Payments made by the company in the lead-up to insolvency that can be “clawed back” — including unfair preferences (payments to creditors within 6 months before insolvency, or up to 4 years for related parties), uncommercial transactions, and transactions designed to defeat creditors.
- Insolvent trading claims: If directors allowed the company to incur debts while it was insolvent, the liquidator can pursue the directors personally for compensation.
- Unrealised assets: Legal claims, insurance proceeds, or interests in other entities.
The effectiveness of the liquidation — and how much you recover — depends heavily on what assets the company had and whether there are viable claims to pursue.
The Priority Order: Who Gets Paid First
This is where many creditors are disappointed. Under the Corporations Act 2001 (Cth), the distribution waterfall is:
- Liquidator’s costs and remuneration (paid first from all assets)
- Secured creditors (from the proceeds of their secured assets)
- Priority unsecured creditors:
- Employee entitlements (wages up to 6 months, annual leave, long service leave, retrenchment pay)
- Outstanding superannuation contributions
- Ordinary unsecured creditors (trade creditors, suppliers, customers with deposits, etc.) — all rank equally and share pro rata
- Related creditors and subordinated debts (paid last, if anything remains)
- Shareholders (return of capital, only if a surplus exists after all creditors paid)
For most unsecured trade creditors, the realistic expectation is cents in the dollar — if anything. In many liquidations, unsecured creditors receive nothing. That’s the hard truth. But lodging your proof of debt correctly still matters: even a small distribution is better than zero, and if the liquidator does recover significant assets (through voidable transaction claims, for example), the pool can be larger than expected.
When Will You Get Paid? Realistic Expectations
Liquidations take time. Simple cases may resolve in 12–18 months. Complex cases with litigation can run for years. The liquidator will issue a report to creditors explaining the expected timeline and recovery.
Interim dividends may be declared if sufficient funds are available before the liquidation concludes. The liquidator will notify creditors of any dividend by advertisement and direct notice to known creditors.
Be realistic: if the company was a shell with no real assets, you are unlikely to receive anything. Focus your energy on understanding whether any personal claims exist against the directors.
Your 10-Day Action List
If you’ve just found out a company owing you money has gone into liquidation, here is what to do immediately:
- Confirm the liquidation: Search ASIC Connect (asic.gov.au) and confirm the company’s status and the liquidator’s name and contact details.
- Contact the liquidator: Register as a creditor and ask for the creditor information pack and proof of debt form.
- Gather your documents: Pull together all invoices, contracts, purchase orders, correspondence, and statements of account that evidence the debt.
- Lodge your proof of debt: Even if the liquidation is at an early stage, lodge promptly. Ask about the bar date.
- Check for security: Did you register a security interest on the PPSR? If so, contact a lawyer to confirm your position as a secured creditor.
- Check for ROT clauses: If you supplied goods, do your terms include retention of title? Are your goods still identifiable?
- Check for personal guarantees: Did any director personally guarantee the debt? If so, you may be able to pursue the director directly.
- Consider director liability: Was the company trading while insolvent? Speak to an insolvency lawyer about whether a claim against the directors is viable.
- Watch for unfair preference claims: Were you paid by the company in the 6 months before liquidation? The liquidator may seek to claw this back as an unfair preference. Get advice.
- Stay informed: Attend creditors’ meetings (or appoint a proxy). Keep your contact details updated with the liquidator so you receive all notices.
Frequently Asked Questions
Can I still chase the director personally if the company goes into liquidation?
Yes, in certain circumstances. If a director personally guaranteed the debt, you can pursue them on the guarantee regardless of the liquidation. If the director allowed the company to trade while insolvent — incurring debts it had no reasonable prospect of repaying — the liquidator can pursue the director for compensation under the insolvent trading provisions (s588G of the Corporations Act). Creditors can also apply to the court for leave to pursue insolvent trading claims directly in limited circumstances. Speak to an insolvency lawyer to assess your options.
What if I paid a deposit or prepaid for goods or services that were never delivered?
You are an unsecured creditor for the amount of your prepayment. Lodge a proof of debt for the full amount, supported by proof of payment and the contract or invoice. Unfortunately, without security, you rank alongside other unsecured creditors and may recover little. If the amount is significant, speak to a lawyer about whether any specific recovery options exist in your circumstances.
The liquidator has contacted me saying I received an ‘unfair preference’ payment. Do I have to pay it back?
Potentially, yes — but not always. If the company paid you within 6 months before liquidation (or up to 4 years for related parties) when it was insolvent, the liquidator can seek to recover that payment as an unfair preference under s588FA of the Corporations Act. There are defences available, including the “good faith” defence if you had no reasonable grounds to suspect insolvency and provided value in return. This is an area where you should obtain legal advice immediately — do not simply pay without understanding your position. Our team regularly acts for creditors in unfair preference disputes.
This article is general information only and does not constitute legal advice. You should obtain professional advice specific to your circumstances before taking any action.
Speak to a Boss Lawyers Insolvency Lawyer Today
If a company that owes you money has gone into liquidation, our experienced insolvency lawyers in Brisbane can help you understand your rights, lodge your proof of debt correctly, assess director liability, and defend any unfair preference claim brought against you. Our debt recovery lawyers in Brisbane have a proven track record of helping creditors navigate insolvency and recover what they’re owed.
Call 1300 267 711 or contact us online.
Mark Harley, Principal Solicitor
Boss Lawyers
Level 27, Santos Place, 32 Turbot Street, Brisbane QLD 4000
1300 267 711
