Small businesses comprise three-quarters of Australia’s recent corporate insolvency cases. These enterprises also represent the largest group of debtors. Even when early warning signs are present, insolvency can disrupt even the most stable accounts receivable processes. 

In these situations, businesses then face the urgent questions about whether payment is still possible and what steps should be taken next. The sudden reality of a client’s financial problems can create uncertainty over outstanding invoices and test the resilience of an organisation’s operations. Acting quickly to follow the correct procedures can maximise recovery and protect the business’s position as a creditor.

Types of Corporate Insolvency in Australia

The Australian insolvency framework provides several structured processes to manage financial trouble and protect creditor interests. Voluntary administration, receivership, and liquidation are most common.

• Voluntary Administration

Voluntary administration is a legal process intended to provide a financially troubled company with a temporary reprieve, often described as a “breathing space,” to explore options for its future. It is typically initiated when the company’s directors believe it is insolvent or likely to become insolvent. 

• Receivership

Receivership is distinct from voluntary administration and is generally initiated by secured creditors who hold security over the company’s assets, such as banks. The secured creditor can appoint a receiver to take control of the secured assets, manage them, and recover the amounts owed to the creditor.

• Liquidation

Liquidation, also known as winding up, is the formal process of ending a company’s existence by selling off its assets and distributing the proceeds to creditors in accordance with its legal priority. It marks the final stage when a company is insolvent and unable to continue operations.

What to Do When a Debtor Becomes Insolvent

When a client enters insolvency, timely action can improve the likelihood of recovering part of the business debt.

• Review the Debtor’s Account

Before taking formal action, review the client’s account thoroughly. Gather all relevant invoices, statements, and payment records to determine the amount owed.

A clear, well-documented overview improves the creditor’s position in the insolvency process and serves as a key reference when dealing with administrators or liquidators. Business owners can also use this stage to determine if the debt is secured. This will affect the chances and priority of repayment.

• Communicate With the Insolvency Practitioner

Once the insolvency is confirmed, creditors should establish contact with the appointed administrator, liquidator, or trustee.

They will coordinate with the insolvency practitioner to help clarify the nature of the proceedings, including the expected timeline and process for submitting claims. 

• Submit a Proof of Debt

Creditors seeking repayment must lodge a formal Proof of Debt form with the insolvency practitioner. It outlines the amount owed and must be supported by clear evidence such as contracts, invoices, and statements. 

The submission must be well-prepared, ensuring the claim is taken seriously and placed in the correct category for potential fund distribution. If business owners missed this step or submitted incomplete information, then there is a chance that their claim will be rejected.

• Monitor Key Deadlines

Once proof of debt is lodged, it is crucial to track all related deadlines. In Voluntary Administration cases, the process begins on Day 0 when an administrator is appointed. Within five business days, creditors must be notified about the administration.

The first creditors’ meeting is then held within eight business days. Subsequently, by the twentieth business day, creditors vote on the company’s future, including options such as liquidation or Deed of Company Arrangement (DOCA).

In liquidation cases, on the other hand, creditors’ meetings require at least five business days’ notice before they take place. Furthermore, a minimum of 21 days’ notice must be provided before any dividends are paid to creditors. These timeframes help ensure transparency and give all involved parties adequate time to prepare and respond.

• Seek Professional Debt Recovery Assistance

Due diligence alone cannot just persist past legal barriers; working with experienced debt collection professionals creates better chances to recover outstanding amounts. A debt collection agency in Sydney has professionals skilled in navigating insolvency cases. Their expertise allows businesses to maintain focus on their operations while recovery efforts are handled efficiently and in compliance with legal requirements.

Protect Your Business with Bluechip Collections

As insolvencies increase, so does the need for faster, more effective accounts receivable management. Affordable professional debt recovery services can help safeguard accounts receivable from the adverse effects of rising business insolvencies.

Bluechip Collections, one of Australia’s leading debt collection companies, offers a commission-only model to help businesses recover outstanding debts without upfront costs. Our experts approach every case with professionalism and care, so organisations can confidently manage overdue accounts with minimal disruption to operations.

Protect your accounts receivable and secure cash flow by contacting us through our website or at 1300 462 114.