When a company is going through liquidation but they still owe you money, there are some steps that can be taken single-handedly to try to reclaim the funds you are owed. We explain what can be done when you don’t have invoice insurance to fall back on.
The liquidation process explained
Liquidators take control of insolvent companies to ensure that debts are dealt with efficiently and effectively. This is part of the process of ‘winding up’ the business. In favourable circumstances it means that all outstanding creditors (that’s you) will have their unpaid invoices returned to them once the company’s assets have been released.
Liquidators check whether the directors of the company have been acting with integrity and running it according to the Corporations Act 2001. This involves checking if the company has been partaking in insolvent trading, where directors may have made decisions to benefit themselves not the company and checking if external parties have benefited from said deals, despite the company being insolvent. Essentially, the processes liquidators follow maximises the available assets with which to settle unpaid invoices.
But getting what you are owed is not guaranteed. Sometimes there isn’t enough money for all of the company’s outstanding debts to be settled and so the liquidator will instead offer a percentage of the total unsecured debts.
It’s not always so simple…
Liquidators don’t always pursue a company’s directors, particularly if there doesn’t appear to be financial benefits in doing so. It may be down to you to do this single-handedly. This involves informing the liquidator with a letter that you will be commencing proceedings against the directors. You then need to wait for a response. They legally need to reply within 3 months. The liquidator will either grant you consent to continue with proceedings or refuses you from doing so. If you are refused, you will need to apply to the court to do so.
Successful claims?
Once you embark on pursuing a company’s directors, in order to succeed in your claim you’ll have to prove four main things: that relevant insolvent trading provisions have been contravened by the directors, that your company has suffered loss or damage due to your client’s debt, that this debt was unsecured when you experienced the loss and that your client is in the process of being wound up.
Success means that you’ll receive an order to repay the debt and any costs incurred for bringing about action.
You may need to hire an accountant or financial controller who can be granted access to the insolvent company’s books, to provide expert evidence.
A long and winding road
It’s clear that re-claiming funds from a company going through liquidation is a lengthy and time consuming process that requires lots of attention. Investing in invoice insurance means you won’t have to go through this for future invoices that you’ve insured with our team at InvoiceInsure. For a small monthly payment, you’ll have access to a network of underwriters and credit specialists with expertise in reclaiming funds owed to you if a client of yours becomes insolvent as you move forward.
Don’t waste more time following paperwork and processes you aren’t familiar with. Leave that to us and focus on doing what you do best – running your business and expanding your company.
We’d be delighted if you get an invoice insurance quote for by clicking the link below – it’s a simple process and won’t take long.
Giulia Macgarr