When do I get my money?
Unsecured (trade) creditors with claims against a company are often left with little recourse available once they’ve exhausted all the normal methods of attempting to collect their debt, other than to instruct solicitors to commence winding up proceedings. This has been after letters of demand, phone calls, messages left, and even commencing formal proceedings by issuing a statutory demand for payment. This often leads to a creditor applying to court to appoint a liquidator to wind up the company.
Once a liquidator is appointed, the focus of the creditor quickly and understandably turns from ‘how do I recover my debt?’ to ‘when do I get my money?’. Sometimes this can create frustrations when dealing with the liquidator’s team when creditors are constantly told that investigations are continuing, reports are being prepared, a dividend ‘might’ be possible subject to recoveries and costs. But what does all this mean? Creditors still needing the answer to ‘when do I get my money?’.
In this article I’ll try to explain that often the same frustrations felt by the creditor are shared by the liquidator and their team in trying to conduct an orderly winding up of the company affairs, while still meeting the numerous and time-consuming statutory requirements of the Corporations Act 2001.
Delays can often start by being unable to locate the director of the company in liquidation to interview them as to the company affairs and then act on the circumstances. For example:
Where are the assets?
Where are the books and records?
Getting the director to complete the required Report on Company Activities and Property (ROCAP) setting out all the company’s assets and creditors.
Taking possession of the books and records and examining them.
Dealing with secured creditors and employees.
Preparing preliminary advices to stakeholders about the liquidator’s appointment.
While this sounds like a short list, there are many moving parts to an often-complex situation which the liquidator and their team are trying to piece together. Still the creditors are asking, ‘when do I get my money?’.
The conduct of a liquidator in winding up a company is prescribed by the Corporations Act. It sets out the liquidator’s duties and obligations in realising the company assets, conducting investigations, and making reports to the corporate regulator, the Australian Securities and Investments Commission (ASIC). ASIC oversee the entire corporate space in Australia. The liquidator must investigate and report on possible breaches of director duties, insolvent trading, and any transaction that the company or those associated with the company may have been involved with which might be contrary to the Corporations Act provisions. These include possible illegal phoenix activity and unreasonable director-related transactions. If, once these reports are lodged, ASIC want further investigations conducted then the liquidator must deal with ASIC accordingly.
Assuming the liquidator has been able to successfully attend to all the above duties and obligations, and funds are available to distribute, they must still follow a prescribed process set out in the Corporations Act for the declaration and payment of a dividend. Our Knowledge Base factsheet click here sets out the steps involved.
While this may seem straight forward, nothing generates more interest among creditors than a possible dividend. It’s at this point the director and any related entities pull out the ‘outstanding claims’ card for unpaid wages, unpaid rent on premises owned by a related party, unpaid equipment hire owned by a related party. These again all slow down the distribution process to genuine creditors while these related-party claims are investigated. At the end of the day, the job of a liquidator is not just to distribute available funds, but to ensure that those paid a dividend are entitled to it. If unjustifiable claims are made and they are not properly investigated and are paid a dividend, this reduces the funds available for legitimate creditors.
So, to answer the question, ‘when do I get my money?’. As quickly as we can. We understand and appreciate the frustrations of creditors in wanting to be paid. We share those same frustrations particularly when we are unable to get cooperation from directors or access to proper books and records. As always, the best approach is to work with the liquidator in what they are trying to achieve which, as the end of the day, is to maximise the return to each creditor as quickly as possible.