Know when to collect and when to forget a debt

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Every day in the news it seems there is another story about a business going ‘bust’. Normally, this is not of much interest to you unless your business is owed money from them.  If you are owed monies from a business that has gone ‘bust’ you may decide it is best just to write off the debt as there is little or no chance of recovery since your debt is most likely unsecured - but before you decide to do this, it is worthwhile to investigate a bit further as there are different ways of going ‘bust’ and some offer a greater chance of recovering your debt than others.

The Australian Securities & Investments Commission (ASIC) is a useful starting point for finding out more information about what to do when you think a debtor is having financial problems.

The following is a general outline of the different ways  business can go ‘bust’ and what your options are for trying to recover at least some of the amount owed to your business.

1. Receivership

Receivership usually occurs when a secured creditor (such as a bank) appoints a Receiver to collect and sell enough of the company’s assets to pay the debt outstanding. The Receiver will not be involved in collecting and selling assets for any other creditors – including unsecured creditors.

However, you are entitled to continue or start legal action against the business for any debts owed prior to appointment of the Receiver. It is essential that you act quickly as there may be funds left over from the sale of assets by the Receiver that could be available to satisfy the debt owed to your business. In fact, ASIC states it is one of the reason why you would either start or continue legal action against a company even though it has gone into receivership.

A company going into receivership, as opposed voluntary administration or liquidation,  provides you with the best chance of getting at least some of the monies you are owed – but you need to act quickly.

2. Voluntary Administration

The purpose of a voluntary administration is to quickly determine the future of the company. An Administrator is usually appointed by a company’s directors and their main duty is to decide, as quickly as possible, if the business can be saved or if it needs to be put into liquidation.  The Australian Securities and Investments Commission (ASIC)  also provides a useful guide to creditors who are owed money by a company that has gone into Voluntary Administration.

Unfortunately, during the period of voluntary administration, unsecured creditors cannot either begin or continue to enforce their claims against the company without obtaining the Administrator’s consent or Court’s permission. Further, even if a creditor has a personal guarantee from one of the company’s director they cannot act on this without the Court’s consent.

The best an unsecured creditor can do is to lodge a proof of debt with the Administrator so that if there are funds available for distribution you will receive what you are entitled to.

3. Liquidation

A company goes into liquidation when it becomes insolvent and an independent person takes control of the company from it directors so that its affairs can be wound up in a fair manner for the benefit of it is creditors – including unsecured creditors.

Once a company has gone into liquidation, you cannot begin or continue to enforce claims against the company.  Again, the best you can do is to make sure that you lodge your proof of debt with the liquidator so that if there are funds available for distribution you will receive what you are entitled to.

Given the different ways a company can go ‘bust’ it is essential that you act quickly to improve the chances of being paid. Brodie Collection Services can assist you with finding out what your options are when a business gets into financial difficulties.

Brodie Collection Services is one of Australia's leading debt collection firms, with offices in Melbourne and Brisbane. They can provide ASIC search services from a low $46.50. They also provide debt collection services on a no collection, no charge basis. You can trust them with all your debt recovery needs. Visit www.brodiecollectionservices.com.au to find out more about the debt collector services that are offered by Brodie Collection Services or call us on 1300 276 343.

This information provides a general summary only and is not intended to provide specific advice for your individual circumstances. It is not a substitute for professional advice and should not be relied upon as such.