Your customer went into liquidation owing you money: handling the cash gap

The email nobody wants

It usually arrives as a formal notice: a customer has appointed a liquidator or voluntary administrator, and you’re listed as a creditor. The invoices you were counting on for next month’s wages, suppliers and BAS have just become a claim in someone else’s insolvency.

Two things are true at once. You have rights as a creditor, and it’s worth exercising them properly. And your own bills don’t pause while that process runs. This guide covers both — the steps to protect your claim, and the steps to protect your business.

Liquidation or administration: what’s the difference for you?

The notice will tell you which process has started. They work differently.

	Voluntary administration	Liquidation
Purpose	Decide the company’s future	Wind the company up and distribute what’s left
Key timing	First meeting within 8 business days; decision meeting within 25 business days (30 around Christmas or Easter)	Liquidator investigates, realises assets, then pays dividends if funds allow
Can you chase the debt?	Unsecured creditors can’t begin or enforce claims without consent or court permission	Claims go through the liquidator’s proof-of-debt process
Possible outcomes	Company returned to directors, deed of company arrangement, or liquidation	Dividend to creditors, possibly nothing for unsecured creditors

These timings and rules come from ASIC’s guides for creditors, which are worth reading in full if you’re owed a significant amount.

What should you do in the first week?

1. Stop adding to the debt. Don’t supply further goods or services on credit to the old company. If an administrator asks you to keep supplying, get written confirmation of who will pay for new supply and on what terms.

2. Gather your evidence. Pull every unpaid invoice, the purchase orders or contract, delivery dockets, statements and correspondence. ASIC says you should attach copies of all relevant invoices and supporting documents to the proof of debt, because a claim may be rejected if the evidence isn’t there.

3. Lodge a proof of debt when the administrator or liquidator calls for it. In administration, you must lodge details of your debt to vote at creditors’ meetings. In liquidation, the liquidator will call for formal proofs when funds might be available.

4. Check for security or retention of title. If your terms of trade include retention of title, or you registered a security interest on the Personal Property Securities Register (PPSR), tell the administrator or liquidator immediately. ASIC notes that registering on the PPSR is what makes a security interest over personal property enforceable and gives it priority in an insolvency.

5. Attend or follow the creditors’ meetings. In administration, the decision meeting decides whether a deed of company arrangement is accepted — which can affect how much you eventually recover.

6. Rebuild your cash plan without the money. This is the step that protects your own business, and it can’t wait for the insolvency to finish.

How much might you actually recover — and when?

Plan for “not much, not soon”, and treat anything more as a bonus. ASIC’s guide sets out the order in which a liquidator pays: the costs and expenses of the liquidation (including the liquidator’s fees), then outstanding employee wages and super, employee leave, retrenchment pay, and only then unsecured creditors. Each category must be paid in full before the next receives anything.

For most trade creditors, that means any dividend comes late in the process and is often a fraction of the debt. A deed of company arrangement in administration may produce a different outcome, but the timing is still measured in months.

What is an unfair preference, and should you worry?

If the customer paid you in the months before it collapsed, a liquidator may look at those payments. ASIC explains that a payment to a creditor may be an unfair preference if it was received during the six months before the liquidation is taken to have begun and certain conditions are met. In a simplified liquidation, the window is three months and unrelated creditors are generally only exposed where the total received is more than $30,000.

If you receive a preference claim, don’t ignore it and don’t pay it automatically — get advice. It’s worth factoring the possibility into your cash planning if you received large payments from the customer recently.

How do you rebuild your cash plan?

Take your week-by-week cash map for the next eight weeks and remove every dollar you expected from the failed customer. Then look at what’s left:

• Which bills now can’t be paid on time? List them with amounts, due dates and consequences.
• What’s the deepest point in the gap? That’s usually a few weeks out, not this week.
• What can move? Suppliers you’ve dealt with for years may give you a fortnight if you explain what happened.
• What can’t? Wages and super (under Payday Super, contributions must reach funds within 7 business days of payday), statutory deadlines, and critical suppliers.

Our page on emergency triage ranks bills by consequence, and how much to borrow turns the gap into a number. If the gap is real and close, a quick enquiry will tell you what’s possible in the time you have.

Should you borrow to cover the gap?

If the business was healthy before the customer failed, bridging the gap is often exactly the right use of short-term finance. The alternative — missing wages, stopping suppliers, falling behind with the ATO — can turn someone else’s insolvency into your own crisis.

The shape of the funding depends on the size of the hole and what you have to work with:

• Smaller gap, trading business, no property: unsecured cash-flow funding, typically $5,000 to $500,000, sized on turnover and bank statements. Same-day funding is possible for smaller amounts.
• Larger gap, or several bills at once: a property-secured loan from $20,000 to $5,000,000; $20k to $250k is possible same day and up to $5m within 24–48 hours.
• A lumpy few months: a line of credit that absorbs the gap while you rebuild the customer base.

Be clear about the repayment. The failed customer’s dividend isn’t a reliable exit. Your repayment plan should rest on your ongoing trading, other customers and new work.

An illustrative example

Illustrative only. A commercial plumbing company is owed $186,000 by a builder that enters voluntary administration. The company’s next pay run is $54,000 plus super, a supplier account of $38,000 is due within two weeks, and the July–September BAS of $41,000 is due on 28 October.

The owner stops work on the builder’s remaining sites, lodges details of the debt with the administrator, and confirms the company’s retention of title clause covers some unfitted materials still on one site. The cash map without the builder’s money shows a low point of −$112,000 in four weeks. The owner calls the supplier and agrees a two-week extension, then arranges a property-secured loan over the directors’ home to cover payroll, super and the BAS. The administration later ends in a deed of company arrangement; the eventual dividend reduces the loan, but the repayment plan never depended on it.

What can you change for next time?

• Watch concentration. If one customer is more than a quarter of your receivables, a failure hurts. See our guide on losing your biggest customer.
• Tighten terms with slow payers. Progress payments, deposits and shorter terms reduce what’s at risk at any moment.
• Use retention of title and register it. Talk to your lawyer about terms of trade and PPSR registration.
• Check how large customers pay. The Payment Times Reporting Scheme publishes large businesses’ payment practices to small business.
• Keep a standby facility. A line of credit arranged in calm times is easier than an emergency loan arranged in a hurry.

Don’t let their collapse become yours

Watching a customer go under owing you money is hard enough without your own staff and suppliers feeling the effects. If the gap is real, tell us what you’re owed, what bills it affects and when they’re due. There’s no credit check when you first enquire, your details aren’t shopped around to a list of lenders, and a real person looks at your situation and calls you. Please fill in the form accurately — especially the gap, the deadlines and any property — so the option we find keeps your business moving while the insolvency runs its course. You can also use the triage checker to see your likely pathway first.

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