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Enforcement is not automatic — you need to take urgent action!
This factsheet covers the four basic steps to help you get your goods, or their value, back once an insolvency practitioner has been appointed.
It’s important to understand which type of insolvency practitioner has been appointed, it could be a liquidator, administrator, receiver of corporate customers or bankruptcy trustee.
The type of practitioner determines the process they will follow. To understand the different types of insolvency visit ASIC.
Enforcing your security interest can be complex. Consider the value of the goods at stake and the impact of any subsequent loss on your business. It may be wise to invest in legal advice upfront.
Your customer has gone broke and an insolvency practitioner has been appointed — what happens now?
Contact the insolvency practitioner
The insolvency practitioner needs to be notified of your claim — you can do this by sending a letter or email. Be sure to include any underlying documentation to support your claim — such as copies of your security agreement, terms of trade and PPSR registration details.
It’s also important to ask for:
- an urgent stocktake of your goods on hand (including quantity and value)
- sales of your goods to be stopped and to not proceed without your written consent
- access to the premises to identify your goods.
If you are unsure of who has been appointed, you can check company details at Insolvency Notices or bankruptcy details at AFSA BRS search.
Be aware: Insolvency practitioners have many legal and professional duties, but they are not appointed to look after your interest. Insolvency practitioners are obliged to thoroughly investigate your secured claim, this includes checking your registration to make sure it’s effective — if you’re concerned seek legal advice.
Care should be taken with future deliveries or supplies to this customer. Consider stopping supply unless you have specific written instructions from the insolvency practitioner or you're contractually obliged to do so.
Stocktake status
Check your own records to see what goods should be available and cross-reference with the stocktake list provided by the insolvency practitioner.
If the insolvency practitioner needs to sell perishable stock or simply wants to sell your goods — they should agree to account to you for the sale proceeds (subject to the assessment of your claim).
Take possession
As soon as you have identified the existence of your goods liaise with the insolvency practitioner to get them back.
Be aware: Taking possession can be complex and you need to make sure you comply with the law.
The process for repossession depends on the type of insolvency practitioner appointed and the goods supplied.
What if your goods are gone?
Have your goods been sold?
If your goods have been sold (i.e. turned into proceeds) there may be money in the bank and you could have a continuing security interest in these funds.
If your goods have been sold, but not paid for, you may have a claim on the company’s debtor’s ledger.
Either way, check with the insolvency practitioner.
Be aware: Your customer’s bank may also have a security interest over these funds.
Have your goods been processed (or transformed) into another product?
If the goods have been processed or transformed into another product, or an accession such as tyres on an engine, you might still have rights in the processed or new product.
The practicality of enforcing claims over mixed or manufactured goods can be difficult. It's important that you have records to help identify unpaid supplies, their value when supplied, and when they were made or delivered. The insolvency practitioner has access to your customer's records and must cooperate with you.
Be aware: The insolvency practitioner is normally entitled to deduct reasonable expenses incurred in identifying, storing or dealing with the goods — if you’re concerned by the amount deducted seek advice.
Not enough funds to cover your debt?
The value of the goods might not cover your debt so you may need to put in a claim (‘proof of debt’ form) for the unsecured balance. You may get some of your shortfall back through this route.
Refer to ASIC’s Liquidation Guide for Creditors for information about rights of unsecured creditors in corporate administrations.
Be aware: This option does not apply during receivership. It may become an option if insolvency proceedings progress to liquidation.