The current COVID-19 pandemic is wreaking havoc with businesses and it is an unfortunate reality that in the event one of your customers becomes insolvent, your business could be severely affected.
In part three of this series, Special Counsel Catherine Ballantyne outlined some practical tips on putting yourself in the best position available with your customers while solvent. This article will build on this by examining some steps to take in the event your customer does become insolvent.
Tips for when an administrator or liquidator is appointed to your customer
Once an administrator or liquidator is appointed to your customer there are some important issues to be aware of:
- Seek advice to confirm if you are a secured creditor – secured creditors enjoy priority over unsecured creditors pursuant to the Corporations Act. If you have correctly registered on the Personal Properties Securities Register (“PPSR”) this will also usually afford you the rights of a secured creditor.
- If you are a secured creditor, do not file a proof of debt with the administrator or liquidator. In some circumstances, submitting a proof of debt and voting in creditors meetings based on this proof of debt can be deemed as surrendering your security and becoming an unsecured creditor. You need to write separately to the liquidator / administrator to make them aware of your security.
- If you are an unsecured creditor, ensure that you submit a proof of debt with all of the relevant contracts, terms of trade and invoices attached to ensure that you are able to vote at creditors’ meeting and receive any dividend payable by the liquidator.
- Stay informed – make sure that your contact details are current, read the administrator’s or liquidator’s reports carefully, ask questions and attend creditors’ meeting. This will assist you in knowing what return you are likely to expect, allow you to vote whether to accept any deed of company arrangement proposed and be aware of any Court proceedings the liquidator has filed.
- Be aware that any payments you have received from your customer in the six months prior to the company being placed into administration or liquidation could be attacked by a liquidator as an unfair preference. If this occurs seek legal advice as to the strength of the liquidator’s claim and the best strategy when negotiating with the liquidator.
In the unfortunate event that one of your customers has an administer or liquidator appointed it is important to be aware of the situation and seek legal advice in order to maximise your return.