If a company owes a creditor $2,000 or more, a creditor can take steps to have the court wind the company up (court ordered liquidation). A debtor company which fails to comply with a creditor’s statutory demand will be deemed insolvent. Once that occurs, a creditor can make an application to the court to have that debtor company wound up. If successful, a liquidator will be appointed who is then responsible for winding up the company’s affairs. This article will provide creditors with an overview of various aspects of the liquidation process, including the role of the liquidator.
The Liquidator’s Role
The liquidator’s overall duty is to the debtor company’s creditors. Their responsibilities are extensive and include the following:
- Collecting and realising the company’s assets including protecting company assets where necessary;
- Investigating and reporting to the creditors about the debtor company’s affairs. A liquidator can investigate any potential unfair preferences which may ultimately be set aside. They can also investigate potential claims against the company directors, for example, if a director has been trading while the company was insolvent;
- Looking into the reason why the company failed;
- Distribution of funds in order of priority (after the payment of the liquidator’s costs);
- Making an application for deregistration of the company (once the liquidation is complete).
What Happens at a Creditor’s Meeting?
A liquidator can call a creditors’ meeting at various stages throughout the liquidation process. At the meeting, a liquidator will inform the creditors of their progress and seek approval of their fees. Where the court has appointed the liquidator, they are only required to call a creditors’ meeting in circumstances where:
- Creditor approval is required;
- Creditors pass a resolution requiring a meeting;
- They are requested to do so by one-tenth in value of all creditors.
A creditors’ meeting is also a good opportunity to provide the liquidator with any relevant information you may have about the debtor company. The meeting’s chairperson (typically the liquidator) must lodge the minutes from the meeting with ASIC. A copy of these minutes can then be obtained through ASIC after paying any requisite fee.
Can a Creditor Vote at a Creditors’ Meeting?
Before a creditor can vote at a creditor’s meeting, they must first lodge a ‘proof of debt’ form with the liquidator (discussed below). A creditor can then either attend the meeting and vote themselves or appoint a proxy who can attend the meeting and vote on their behalf. If appointing a proxy, the creditor may specify how that proxy is to vote or, the creditor may allow the proxy to decide how they vote.
Proof of Debt
A ‘proof of debt’ is a form that a creditor lodges with a liquidator. It must contain sufficient information about the debt to ‘prove’ to the liquidator that the debt is owing. Copies of any tax invoices or other supporting documents should be attached to the proof of debt form.
Once a creditor lodges a proof of debt form, the liquidator then has seven days to notify you as to whether your claim has been admitted or rejected. If the liquidator has rejected your claim and you are unable to resolve the matter with them, it is important that you seek legal advice immediately. A liquidator can only distribute funds to creditors who have lodged proof of debt forms which have ultimately been admitted by the liquidator.
The Priority of Distribution
A liquidator will pay the distribution of any funds in the following order of priority:
- The costs and expenses of the liquidation including the liquidator’s fees;
- Secured creditors;
- Any outstanding employee wages and superannuation;
- Any outstanding employee leave entitlements;
- Any employee retrenchment pay; and finally
- Any unsecured creditors.
Each category is paid in full before the next category receives any funds. If there are insufficient funds to pay the whole of a category in full, the balance of the funds will be paid pro rata. If this occurs, any remaining categories will receive nothing.
Whether you are a creditor who is owed money and you wish to pursue the recovery of that debt or your debtor has already been placed into liquidation, it is sensible to obtain legal advice. If you have any questions about recovering a debt, get in touch with our dispute lawyers on 1300 544 755.