How do I know if I am a creditor?

You are a creditor of a company if that company owes you money. A more thorough definition is that you are a creditor if you are someone who has generally provided services, goods or loaned money to a company and that company has not yet paid you for those services, goods, or money you lent.

The provision of a service or good is not just limited to suppliers and contractors. An employee is also considered a creditor when he or she has worked for the company and not yet been paid. Similarly, someone who has a legal claim against a company is also considered a creditor.

Secured and Unsecured

Creditors are also further categorised into secured and unsecured creditors. A secured creditor is someone who has their debt “secured” by an asset.

Secured 

A good way of explaining this is by taking the example of a mortgage. When you have a mortgage, you borrow money from a bank. The bank, however, needs to make sure that you will be able to pay the money back. Simply promising to do so is insufficient for a bank. Therefore what the bank will do is use your property as security. This means that if you are unable to pay the mortgage back, they will take the security and sell it in order to recover the money from the mortgage. The important thing to realise here, is that the bank’s debt is associated with a particular asset (i.e. your property).

This works almost exactly the same way in the context of a secured creditor. Replace mortgage with debt and bank with creditor, and you will realise that even if a company doesn’t have any actual money to pay the creditor, as a secured creditor, they can instead take the asset in exchange for the money and sell the asset in order to recover the money from the debt.

Obviously being a secured creditor is preferable to being an unsecured creditod. It’s important to note that in order to have priority as a creditor of an asset, you must be registered with the Personal Properties Securities Register (PPSR).

Unsecured

An unsecured creditor is a creditor that does not have their debt associated with a particular asset. This means that they will need to be paid out from the remaining assets that the company may have after everyone else has been paid.

In the case of an employee, although they may seem like an unsecured creditor, they are slightly different and are placed higher up in the insolvency waterfall than unsecured creditors. The technical term for this is “preferential creditors.”

Conclusion

Remember to always keep an eye on the date. Generally there will be a time limit on when you are able to submit your debt as a creditor. If you miss this cut off, it could mean that you will miss out on getting your money back. If you are unsure whether you are a creditor, or have any other questions, feel free to give us a call on 1300 544 755 and our insolvency lawyers will be able to assist.