Few things are more frustrating for a business than discovering that a client who owes you money has gone insolvent. When this happens, recovering what you’re owed becomes far more complicated — but not necessarily impossible. Understanding your options early can make a big difference in whether you recover anything at all.
1. Act Quickly and Verify Insolvency
As soon as you suspect a client is in financial distress, act fast. Check the Australian Securities and Investments Commission (ASIC) insolvency notices or company register to confirm if administrators or liquidators have been appointed. The earlier you know, the more strategic you can be — for example, by lodging a proof of debt or asserting any security interests.
2. Lodge a Proof of Debt
If the company has gone into liquidation, you can lodge a proof of debt with the appointed liquidator. This formal claim sets out what you’re owed and the basis for your claim. While unsecured creditors are usually paid last, submitting a proof of debt ensures you’re on the record and eligible for any future distributions — however small they might be.
3. Identify Secured or Priority Rights
If you have a registered PPSR (Personal Property Securities Register) interest — for example, if you supplied goods on retention of title terms — you may have a stronger claim to recover the goods or their value. Similarly, certain debts (like employee entitlements) may have priority under insolvency laws. Knowing your position in the creditor hierarchy is crucial.
4. Consider Directors Personally
In some cases, you may be able to recover money from the company directors personally — for instance, if they provided a personal guarantee or traded while insolvent. Pursuing directors can be complex and requires legal advice, but it can sometimes be the only realistic way to recover funds when the company itself has no assets.
5. Strengthen Future Protections
While you may not recover everything from an insolvent client, you can protect your business moving forward. Review your contracts to include personal guarantees, clear payment terms, and PPSR registration clauses. These measures can significantly improve your recovery prospects if another client goes under.
Key takeaway:
Once a client becomes insolvent, options narrow quickly — but informed and timely action can still lead to recovery. More importantly, using the right contract and credit protections now will help your business avoid the same risk in the future.
If you’re dealing with an insolvent client or need to strengthen your debt recovery processes, Twomey Dispute Lawyers can help you act quickly and strategically.
