Has a Major Unpaid Debt Put Your Business Under Pressure?

What actually changes when a customer stops paying?

You take the hit twice, and the two hits need completely different responses.

The first is the money you have already earned. That becomes a claim in your customer’s administration, and what happens to it is decided by a process you have no control over and cannot speed up.

The second is your own cash flow, and this is the one still in front of you. Work you expected to invoice next month has gone. Wages, suppliers, tax and equipment finance all fall due on exactly the same dates as before. Nobody is coming to tell you about this one, and it will land before the first is anywhere near resolved.

Almost everything below is about the second hit, because that is the one you can still do something about.

One thing to be clear on before you read on. Struggling to pay a bill does not, by itself, mean your business is insolvent. This page does not tell you whether you can keep trading, and it is general information rather than advice about your situation.

Where does my claim rank?

Behind more people than most subcontractors expect. If your customer is wound up, unsecured creditors are paid after several other categories, and each category must be paid in full before the next one gets anything at all. ASIC liquidation guide.

Secured lenders are not even in that queue. They hold security over the company’s assets, so they are paid out of those assets before the list above starts.

Subcontractors, suppliers and trade creditors are almost always unsecured, which is the bottom line of that table. In a large collapse the secured debt can be many times the money left for everyone else. That is why, until an administrator or liquidator tells you otherwise, the safest thing you can do is plan as though the money is not coming. ASIC voluntary administration guide.

Which company debts can become personal?

This is the part that catches directors out, because it has nothing to do with your customer collapsing. It depends entirely on your own company’s obligations, and the clock on some of it is already running.

Director penalties. A director can become personally liable for their company’s unpaid PAYG withholding, GST and superannuation guarantee charge. The ATO describes the liability as arising automatically when the company fails to meet the obligation in full by the due date. Where a director penalty notice is issued, the ATO may begin recovery 21 days later. If the company has not reported the amounts by their due date, the ATO may make its own estimate and apply penalties to that. ATO director penalties.

Lodging on time and paying late is a completely different position from not lodging at all. Understand which one you are in before you decide what to pay first. It is the single most useful thing you can find out this week, and your accountant can check it in minutes.

Personal guarantees. Trade credit and equipment finance are often supported by a personal guarantee. A guarantee is not extinguished by the company’s position, so knowing which creditors hold one changes how you think about the order in which things are paid.

Each of these is covered in more detail in could you be personally liable if your own business fails.

If you have other customers still trading, security of payment is the fast lane and it closes when one of them collapses.

Can payments I have already received be taken back?

Sometimes, yes, and most creditors have never heard of this until it happens to them.

A payment you received can be an unfair preference if it was made in the six months before the liquidation began, the company was insolvent when it paid you or became insolvent because it paid you, and you got more than a dividend would have paid you. A liquidator can come after that money. ASIC liquidation guide.

The payments that get looked at are the ones outside your normal terms. An account that suddenly cleared after months of nothing. A part payment that arrived just before the collapse.

If a customer who later failed paid you in a way that was unusual, do not assume that money is settled. Raise it with a qualified adviser now, while it is a question rather than a demand.

What should I take stock of?

Write it down. An estimate carried in your head is no use to you, and no use at all to anyone you ask for help.

Build a thirteen-week view. Not a budget, a survival calculation.

• Cash you actually have now, with anything restricted marked separately.
• Money you are genuinely confident of over the next quarter. Put $0 next to anything the failed customer owes you. Treating it as anything else is how businesses talk themselves into trading another month.
• Every commitment falling due across the same period: wages, superannuation, suppliers, tax, rent, equipment finance.
• Which creditors hold a personal guarantee. This changes who you pay first.
• Whether your activity statements are lodged, and whether any are unpaid. Those are different problems, and the second is much easier to fix than the first.
• Any notice with a response date on it.

What you are left with is your runway, in weeks. That number drives every other decision you make this month.

If your accountant cannot help you build that, ask someone who can. It is a normal request and it should not take long.

What should I discuss with an adviser?

Tell them which payments are getting hard, what is already behind, and any date you are working to. Then ask four things: what information do you need from me, what would you actually do, what does it cost, and is this your field?

That last one matters more than it sounds. Insolvency is its own specialty. An accountant who does your annual accounts every year may be very good and still not work in it, in the same way a GP is not a specialist. Ask directly. A good accountant will say so and point you to someone who does.

And if you are contacted by someone promising to make this go away, or asking for a large fee up front, you are talking to the wrong people. Businesses under pressure attract that.

If you have a notice with a date on it, or you need to know whether you can keep trading, ring your accountant or a qualified adviser today. Do not wait for a phone line to open in the morning.

Can I talk it through over the phone?

Yes, and it is usually faster than working through it alone. Call the number on this page and say what has happened and what is worrying you most. You do not need your paperwork sorted first, and approximate numbers are fine.

You deal with this once. We deal with it every day. The first conversation is for both of us to work out whether there is anything useful we can do for you.

There is no form on this website. A call does not lodge your creditor claim, does not create a professional engagement and does not promise you a recovery. If it turns into professional work later, that is agreed separately in writing, with its fees, before anything starts.

Where can I find the creditor information?

Read what voluntary administration means for creditors or the Bathla Group administration page. The preparation list above is general editorial guidance. The government sources below cover the creditor process, the order of payment in a liquidation, and the director penalty regime.