30 May 2019

What company liabilities are provable in liquidation?


4 min

That's just "fine".

Once a company is placed into liquidation land a liquidator has been appointed, all claims against the company as at the date of the liquidation, are crystallised, that is they are frozen. This holds true whether these debts or claims are present or future, certain or contingent.

Creditors generally fall into two categories—secured and unsecured. Secured creditors hold a registered security interest over some or all the assets of a company and have registered their interest on the Personal Property Securities Register (PPSR). Unsecured creditors have debts owed to them in some form but do not hold any security over company’s assets.

The liquidator will generally make attempts to contact all known creditors or anyone who could be a creditor of the company upon their appointment, but this is also limited to the availability of the books and records of the company. If a creditor attempts to submit an invoice for payment to the liquidator for goods or services provided post the date of the liquidation (e.g. routine gardening maintenance or utilities services), the invoice will not be paid, nor will it be provable in the liquidation unless it is properly authorised by the liquidator for expenses that are necessary to be incurred during the winding up.

speeding image_OTP (1)

There are exceptions to the above rule regarding the freezing of claims against the company. One such example being rent arising from an ongoing the lease agreement. A landlord may submit a claim to the liquidator for the duration of the remaining lease (e.g. if the lease is one third in duration, the landlord can claim for any unpaid debts and the remaining two thirds of the lease). This is however subject to the landlord’s effort to mitigate it losses through actively advertising the property for lease and finding a replacement tenant. The actual loss should be calculated once a new tenant has been located and a revised claim submitted to the liquidator.

A liquidator will only be liable for expenses explicitly authorised in the exercise of the liquidator’s duties and will be reimbursed for those expenses from company assets.

There are some liabilities that are not recoverable once a company is placed into liquidation but are payable if the company is subject to an alternative type of appointment. Fines received by the company such as speeding fines and court-imposed fines, are not recoverable in a liquidation. This is because these are classified as non-provable debts pursuant to Section 553B(1) of the Corporations Act 2001:

Penalties or fines imposed by a court in respect of an offence against a law are not admissible to proof against an insolvent company.”

As such, speeding fines (for e.g. by drivers in a trucking company) are not a provable debt in a liquidation as speeding is against the law. In fact, any fines imposed by the court, (except an amount payable under a pecuniary penalty order within the meaning of Proceeds of Crime), in respect of an offence against the law are not provable in a winding up. The fines enter a “black hole” wherein no further practical action can be taken by the State to recover the amount.

In contrast, if a company was placed into voluntary administration and a deed of company arrangement subsequently executed, any fines incurred prior to the administrator’s appointment would remain payable by the company upon the effectuation of the deed.

For more information on liabilities and creditor claims during a liquidation or administration, please visit our Corporate Insolvency Factsheets on the Worrells website  or contact your local Worrells partner for a confidential, obligation-free chat.

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