Rights of an unsecured creditor of a Company in liquidation

Rights of an unsecured creditor of a company in liquidation

Rights of an unsecured creditor of a Company in liquidation

Once a company is placed into liquidation, a liquidator will be appointed to manage the affairs of the company and the process of the liquidation. The liquidator’s role is to manage the affairs of the company for the benefit of creditors.

One of a liquidator’s first tasks is the review of the books and records of the company to ascertain certain matters, including the identities of any creditors of the company, both secured and unsecured.


Am I a creditor?

If the company owes you money, you will be a creditor. However, there are different classes of creditor and unless you have a secured interest, such as a charge or mortgage, you will be an unsecured creditor. As an unsecured creditor, you will have different rights to secured creditors. There are also different classes of unsecured creditors, such as employees, who will rank ahead of other unsecured creditors, in priority of payments.

A liquidator has obligations to all creditors, both secured and unsecured, and irrespective of ranking.


What are my rights?

As an unsecured creditor, you have the following rights and responsibilities:

  • To provide details of your debt to the liquidator by completion of a “Proof of Debt” form;
  • To vote at a creditors meeting;
  • To approve the fees of a liquidator;
  • To inform the liquidator about any knowledge you have of the affairs of the company;
  • To receive written reports from the liquidator;
  • To receive information from the liquidator at creditors meetings;
  • To ask questions about the liquidation process and status;
  • To receive dividends after payment of priority classes of creditors; and
  • To file complaints to the Australian Securities and Investment Commission (ASIC) or the court if you have concerns about the execution by the liquidator of any duties.


What does the liquidation process involve?

Throughout the process of the liquidation, a liquidator will call creditors meetings of which formal minutes will be taken by a chairperson. Usually, in order to vote at a meeting, you must have lodged a “Proof of Debt”.

This is a form which provides details of you as the creditor, how the debt to you arose and how much money you are owed. You should attach any relevant invoices and documents supporting the debt owed to you. The form must be signed, by the individual for an individual debt or by an authorised person for a company.

A liquidator may reject your debt if there is insufficient evidence or proof the debt exists.

If your proof of debt is rejected, you can seek a review by the liquidator or appeal to the Court. There are strict time limits for appeal so you should consider seeking urgent legal advice at this point as if you do not appeal, the decision of the liquidator is final.

At the first meeting of creditors, creditors are usually asked to vote on the liquidator’s fees. A liquidator is entitled to be paid fees and disbursements. Often these fees are approved by a “Committee of Inspection”. The Committee is usually a group of creditors, appointed pursuant to a vote at the first creditors meeting, to represent all of the creditors.

On approval of fees, a liquidator will then commence the process of attempting to recover monies outstanding to the company and pay dividends to creditors. This process involves recovery of payments to the company by debtors, recovery of payments by the company to creditors who have been paid in priority to other creditors over certain periods of times and recovery of any payments to related parties to the company. Sometimes this recovery necessitates Court proceedings.


What is the priority of payments?

The order of priority of payments in a liquidation is generally as follows:

  1. Costs and expenses of the liquidation (including the liquidator’s fees and fees incurred in any Court proceedings);
  2. Any outstanding employee wages and superannuation;
  3. Any outstanding employee leave (including sick/personal leave, annual leave and long service leave);
  4. Any employee redundancy payments owing;
  5. General unsecured creditors.


How much of my debt will I recover?

This depends on how much is left for payment of unsecured creditors.

Each category is paid in full before the next category is paid. If there are insufficient funds to pay a previous category in full, then there will be no funds available for payment of the following category.



If a company is placed into liquidation, a liquidator will be appointed to manage the affairs of the company and the process of the liquidation which will include deciding who the creditors are, the assets available to satisfy creditor claims and the priority of payments to creditors. A specialist insolvency lawyer can help protect your rights if you are a creditor of a company in liquidation.

If you or someone you know wants more information or needs help or advice, please contact us on 1300 149 140 or email info@lawbase.com.au.