What to do when a customer goes into administration or liquidation

What do you do if a customer or contractor of your business goes into administration or liquidation? Many businesses do not understand the ramifications and their options following the occurrence of these events so we’ve put together a few simple steps.

 

  1. Consider whether you are a secured or unsecured creditor. If you have a valid Personal Properties Securities Register (‘PPSR’) registration in respect of goods or materials you had delivered to your customer, you may be able to take possession of your goods as a secured creditor, but
    1. not until the end of the period of the administration,
    2. with the administrators consent or
    3. the permission of the Court.

Alternatively, if you hold security over the whole or substantially the whole of the assets of the company, you have 13 days in which to enforce your security.  If you do not have a valid security interest, even if you have a retention of title clause in your contract, the Personal Properties Securities Act says that the security interest assigns your goods and materials to the you are therefore not able to collect your goods or materials, unless you obtain the administrators’ consent.

 

  1. If you are in the building and construction industry and are a subcontractor who has not been paid for materials or building works you may have the ability to lodge a worker’s lien. However, you can only lodge a lien if your debt has been outstanding for less than 28 days and only to the extent that the relevant amounts are due. In addition, you may have the right to a statutory charge over any money which remains unpaid by a head contractor to the subcontractor who has subsequently engaged your business.

 

  1. If you do not have a valid PPSR registration and do not have the ability to lodge a worker’s lien then you will most likely fall into the category of an unsecured creditor. Unsecured creditors are prevented from continuing or commencing any enforcement action upon the appointment of an administrator or liquidator, without the consent of the administrator or permission of the court. Whether an unsecured creditor will recover any of its debt is dependent on whether there are any assets available to result in a dividend. Often, an administrator or liquidator is not able to form a view as to the likelihood of a dividend until they have conducted their investigations. As a creditor you should ensure that you lodge a proof of debt with the administrator or liquidator as soon as possible so that your claim is noted and you are sent all relevant communications, including notices of meetings.

 

Above all, if your business finds itself as a creditor of a company in administration or liquidation contact, act quickly and gain advice from your lawyers as to your options.

 

Should you find yourself in this position or to discuss anything in relation to PPSR please feel free to contact Lauren Crosby to discuss your options.