What are Creditors Entitled to in a LiquidationWhat are Creditors Entitled to in a Liquidation

What are Creditors Entitled to in a Liquidation?

  • September 16th, 2018
  • David Hill

When a business goes into liquidation, the parties it owes money to have certain rights. If you’re a creditor to a company entering liquidation, knowing these rights could maximise your chances of recovering as much as possible. Your rights include information from the liquidator, and the right to attend creditors’ meetings. And for secured creditors, you have priority when it comes to the repayment of debt.

Who is a creditor in a liquidation?

A creditor to a company in liquidation is anyone the business owes money to. For example, you can be a creditor if you’ve supplied the business with goods or services, or provided loans to the business. You can also be a creditor if you’re an employee with outstanding pay and entitlements.

Another examples of a creditor includes parties who have succeeded in a legal claim against the business – these are known as contingent creditors.

Creditors can be secured or unsecured. Secured creditors have a security interest (such as a mortgage or charge) over a part or all of the company’s assets. Secured creditors tend to have more rights than unsecured creditors.

Unsecured creditors don’t have collateral or security over assets of the company, and they rank behind secured creditors during liquidation. Examples of unsecured creditors include suppliers to the business, or the ATO if there’s unpaid tax.

Priority of payment

If you’re a secured creditor, you’re second in priority of payment in liquidation, after the costs of liquidation have been covered. Next are unsecured priority creditors – employees. Following employees are unsecured creditors.

Shareholders are last on the list, and they’re usually only paid after the liquidator and any creditors are paid.

What creditors are entitled to during liquidation

The goal of a creditor is to recover as much of their debt as possible. Creditors are entitled to a range of things during liquidation, from updates to debt settlements.

1. Updates and information from the liquidator

During the liquidation process, the liquidator takes control of the company. The liquidator is responsible for winding up the affairs of the business to the benefit of all creditors, and has a range of duties including reporting to you, the creditor. As a creditor, you will receive initial notice of the liquidator’s appointment and an outline of your rights as a creditor.

After three months, you should receive a liquidator’s report with the estimated value of the company’s assets and liabilities. The report will also detail the progress of the liquidation, the likelihood of you receiving a dividend, and any recovery actions available to you.

2. Creditors’ meetings

As a creditor, you’ll have the right to arrange or attend creditors’ meetings. These meetings are designed to allow creditors to discuss and stay updated on the progress of the liquidation. You can also vote on resolutions. These might cover issues such as amounts offered to creditors and liquidator’s fees.

It’s important to note that creditors’ meetings for liquidation differ from those associated with voluntary administration.

3. Committee of inspection

As a creditor, you can form or sit on a committee of inspection with other creditors. The purpose of this committee is to assist the liquidator, review their conduct, and approve or prohibit certain parts of the liquidation if necessary.

Additionally, you have the right to inspect certain books of the liquidator and file complaints with ASIC about the liquidator or the process if you have any issues.

4. Recovery of debt

The recovery of debt will likely be the top priority for creditors. As noted above, if you’re a secured creditor, you’ll usually be first in line for repayment, after the liquidation costs have been covered.

If you’re an unsecured creditor, you’re usually unable to pursue ordinary courses of action for recovery of your debts. Additionally, other claims will be considered before yours. These include unpaid calls on shares, rights of actions for damages, compensation for insolvent trading, and property previously disposed of by the company.

No matter what type of creditor you are, you should get expert advice and take action to recover your debt as soon as you know the company is in financial trouble. If you’re worried a partner company is in financial trouble,you can check whether they’re in liquidation through such websites as insolvencynotices.asic.gov.au and asic.gov.au.

Letters of demand and statements of claim

As a creditor, apart from participating in the liquidation process, you could send a letter of demand along with supporting documents like invoices, debt slips and notifications. Doing so also helps document your claim.

If your claim is rejected or refused, you could proceed to filing a Statement of Claim, which is an official demand for payment seeking a court judgment.


If you’re an employee with unpaid wages and entitlements, you could miss out if the company has insufficient assets. In this case, you could recover some of your losses through the government-funded Fair Entitlements Guarantee. You might be able to claim up to 13 weeks of wages, leave, and other entitlements.

Taking the first step

As a creditor, you’re entitled to information updates as well as the potential for debt recovery according to a priority list. Always seek expert advice if you’re a creditor seeking to recover outstanding debt from a business in liquidation, so you can maximise your chances of recovering what you’re owed.

Australian Debt Solvers are industry leaders in complex debt problems, and we have a nationwide team ready to assist you. If you’re a creditor and would like to speak with one of our experts about your business interests, contact us today.

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