You are three months into commercial litigation. The hearing is set. Your legal position is strong. Then the defendant’s solicitors notify you: their client entered voluntary administration yesterday.
What happens to your case? Can you continue? Do you have to start again? Will you ever recover?
The short answer is: your lawsuit does not simply continue. The Corporations Act 2001 (Cth) imposes significant restrictions on creditors pursuing claims against companies in insolvency. But it does not make your position hopeless. Understanding which restrictions apply, and when exceptions exist, is critical to protecting your position from day one.
This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances.
The Automatic Moratorium: Your Lawsuit Is Paused
When a company enters voluntary administration, the Corporations Act imposes an automatic moratorium — a freeze — on most legal proceedings against the company.
Under section 440D of the Corporations Act, during the administration period, a person cannot:
- begin or continue any proceedings in a court against the company or in relation to its property; or
- begin or continue any enforcement process in relation to the company’s property.
This moratorium applies automatically from the moment the administrator is appointed. You do not need to be notified. You do not need to consent. Your lawsuit is paused by operation of law.
The moratorium covers the entire administration period — from appointment through to either a deed of company arrangement (DOCA), return to solvency, or liquidation.
What About Liquidation?
When a company enters liquidation (whether court-ordered or creditors’ voluntary), the equivalent provision is section 471B. Again, no person may begin or continue any proceeding in a court against the company without leave of the court.
The effect is the same: your existing litigation is automatically stayed.
The Ipso Facto Regime: Contract Clauses Cannot Be Used Against You Either
The 2018 ipso facto reforms (now codified in Part 5.1 of the Corporations Act, ss 415D, 434J, 451E) prevent counterparties from enforcing contract clauses that are triggered solely by an insolvency event. For commercial litigants, this cuts both ways:
- You cannot use a contractual right triggered solely by the company entering administration to accelerate or expand your claim during the moratorium.
- The company cannot rely on an ipso facto clause to terminate a contract with you merely because you are in financial difficulty, if you are the party providing ongoing services.
Can You Continue? Leave to Proceed
The moratorium is not absolute. You can apply to the court for leave to proceed under s440D (administration) or s471B (liquidation).
The court applies a balancing exercise. Relevant factors include:
- Whether the claim is meritorious — leave is more readily granted where the plaintiff has a strong, clearly arguable case.
- Prejudice to the creditor body — if continuing your proceedings would deplete assets available to all creditors, the court is less likely to grant leave.
- The nature of the relief sought — applications to preserve a judgment already obtained are treated differently from new contested claims.
- Insurance coverage — if the company has insurance that would fund the defence and pay any judgment (for example, a D&O or professional indemnity policy), courts are more willing to grant leave.
- Stage of proceedings — if the hearing date is imminent and preparation is substantially complete, the cost of stopping may outweigh the benefit to creditors.
Leave applications require speed. If you miss a hearing date because you did not apply for leave promptly, you may face procedural consequences.
The Practical Path: Proof of Debt vs Leave to Proceed
In most administrations and liquidations, commercial litigants face a choice:
Option 1: Apply for Leave to Proceed (ss440D/471B)
Best when:
- The company holds insurance that would respond to your claim
- Liability is clearly established and proceedings are in advanced stages
- You need declaratory relief or a court order rather than simply money
- The claim is disputed and you need a court to resolve it
Option 2: Lodge a Proof of Debt
Best when:
- The company has no insurance and depleted assets
- Your claim is a straightforward money debt
- Leave proceedings would cost more than the likely recovery
- The claim is undisputed in principle
Most unsecured commercial creditors receive better outcomes by lodging a proof of debt promptly and engaging with the insolvency process than by pursuing leave to continue contested litigation against a company with no assets to fund a defence.
Special Situations
Director Liability Survives Liquidation
The company’s insolvency does not extinguish claims against directors personally. If the directors are personally liable — for insolvent trading, breach of director duties, personal guarantees, or as defendants in their own right — you can pursue those claims concurrently. The moratorium applies to claims against the company, not to claims against individual officers or guarantors.
Secured Creditors
If you hold a registered security interest under the PPSA, the moratorium restrictions may not apply in the same way. Secured creditors have specific enforcement rights. Take advice immediately if you hold security.
Preferential Payment Claims
If you received a payment from the company in the six months (or up to four years in some cases) before the relation-back day, the liquidator may seek to recover it as an unfair preference under s588FA/588FF. A lawsuit you were party to does not protect you from a preference claim — those are separate proceedings, and you are now potentially on the other side.
Time Is Critical
When a defendant enters administration, multiple deadlines run simultaneously:
- First creditors’ meeting: Within 8 business days of appointment. Attend.
- DOCA vote: Second creditors’ meeting, usually within 20-25 business days. Your vote shapes the outcome.
- Proof of debt deadline: Usually set for the second creditors’ meeting. Miss it and you may miss the vote.
- Leave application: Apply before the next hearing date is reached.
The firms that protect their position are the ones that move in the first 48 hours.
How Boss Lawyers Can Help
Boss Lawyers regularly acts for creditors and commercial litigants whose counterparties enter insolvency mid-dispute. We advise on:
- Whether to seek leave to continue proceedings or pivot to proof of debt
- Leave to proceed applications under ss440D and 471B
- Director liability claims running concurrently with the insolvency
- Creditor representation at creditors’ meetings
- DOCA negotiation and assessment
- Preference claim defence
If the other side in your commercial dispute has just entered administration or liquidation, call us now. The first 48 hours matter.
Boss Lawyers | 1300 267 711 | bosslawyers.com.au | Level 27, Santos Place, 32 Turbot Street, Brisbane QLD 4000
Mark Harley is the Principal Solicitor of Boss Lawyers and has acted in commercial litigation and insolvency matters across Queensland and federal courts for over 17 years.
This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances.
Frequently Asked Questions
What happens to my lawsuit when the defendant enters voluntary administration?
Under section 440D of the Corporations Act 2001 (Cth), you cannot begin or continue proceedings against a company in administration without leave of the court. The moratorium applies automatically from the moment the administrator is appointed. You can apply for leave to continue, but you should also consider whether lodging a proof of debt as an unsecured creditor is the more practical path. This is general information only and is not legal advice. Obtain professional advice specific to your circumstances.
Can I continue legal proceedings against a company in liquidation?
Not without leave of the court. Section 471B of the Corporations Act 2001 (Cth) stays all proceedings against a company in liquidation unless you obtain leave to proceed. Alternatively, you can lodge a proof of debt with the liquidator and participate in distributions as an unsecured creditor. Which path is better depends on whether the company has insurance, the stage of your proceedings, and the likely recovery in the liquidation. This is general information only and is not legal advice. Obtain professional advice specific to your circumstances.
Do I need a lawyer if the company I am suing enters administration?
Yes. The insolvency moratorium provisions (ss440D and 471B of the Corporations Act) are complex, and the choice between seeking leave to continue proceedings or lodging a proof of debt can significantly affect your recovery. Boss Lawyers acts for commercial litigants in exactly this situation. Call 1300 267 711 for advice specific to your circumstances. This is general information only and is not legal advice.
Related Reading:
Commercial Litigation Lawyers Brisbane | Insolvency Lawyers Brisbane
