What is the effect of the liquidation on unsecured creditors?

The appointment of a liquidator will have significant effects on unsecured creditors can be varied and also complicated. In most situations the creditor will lose the ability to recover any outstanding direct from the company. The unsecured creditor will need to register its claim with the appointed liquidator. Claims are registered thorough a proof of debt (form 535).

We examine other ways that a liquidation may affect unsecured creditors, these may include the following:

Preferential payments

If any unsecured creditor has received a payment which the liquidator considers to be “preferential” may be clawed back under certain circumstances. The starting point is for the liquidator to examine what payments the company made within 6 months of the liquidation (if it was a voluntary liquidation) or within 6 months of a winding up application being filed in court (if it was a court winding up). Although the liquidator can examine transactions up to 4 years if the payment was made to a related party (ie a person or company related).

Other issues for the liquidator to prove are:
That the creditor was preferred to other creditors as they received more than they would receive through the liquidation of the company;
That the company was insolvent (ie the company was unable to pay its debts as and when they fell due) when it made the payment.

Goods secured by PPSR charge

If any creditor holds security over goods which has been registered under the Personal Property Securities Register, then that creditor may be able to recover these goods from the liquidator.

Court action

Once a company has been wound up (either on a voluntary or compulsory basis) a creditor is unable to commence any fresh litigation against the company. The reasoning behind this is to prevent a company in liquidation being subjected to actions that are expensive and, therefore, carried on at the expense of other creditors of the company. A creditor wanting to commence litigation against a company that is in liquidation will need leave (or approval) of the court (section 500 (2) of the Corporations Act. A court is more likely to grant that leave, if for example the purpose of the litigation is to claim against an insurance policy held by the company.

If you would like to understand the effect of liquidation on unsecured creditors, please call Australian Company Liquidators on 1800 731 155.

The information provided in this site is general in nature and should not be relied upon for your specific circumstance. Call us on 1800 731 155 for a free initial consultation to discuss your specific issues.

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