When a Customer Becomes Insolvent
Once a customer enters a formal insolvency process, the rules change — and so does what you can and cannot do.
What you'll learn
- What "insolvent" means in practice
- The main formal appointments you may encounter
- How an appointment affects your collection options
- What an external administrator will ask of you
7 min read
What insolvency means
Broadly, a company is insolvent when it cannot pay its debts as and when they fall due. That is a question of cash flow, not just whether assets exceed liabilities on paper. When a company reaches this point, directors and creditors have formal options — and once one of those is triggered, an independent practitioner usually takes control.
The main appointments
- Voluntary administration
- An administrator steps in to assess whether the business can be saved or sold.
- Liquidation
- A liquidator winds the company up and distributes whatever value remains.
- Receivership
- A receiver, usually appointed by a secured lender, realises specific assets.
The same company can move through more than one of these over time.
What changes for you
Once a formal appointment is in place, you generally cannot keep chasing the debt directly. Demands, deductions, and enforcement against the company typically pause, and creditors are dealt with collectively through the process. Continuing to pressure the company after an appointment is usually pointless and can be inappropriate. Your route becomes the formal one — lodging your claim and engaging with the administrator.
What you will be asked
The external administrator will normally write to known creditors, ask you to verify your debt, and invite you to lodge a proof. Gather your invoices, statements, contract, and any security or guarantee documents now, while they are easy to find. Good records make your claim easier to admit. See lodging a proof of debt for the practical steps.
A note on advice
This is general information only and not legal, financial, or tax advice. The right response depends on the type of appointment and your position, so obtain advice specific to your circumstances.
Key takeaways
- Insolvency is about paying debts as they fall due — a cash-flow test.
- A formal appointment usually pauses direct collection against the company.
- Different appointments mean different outcomes for creditors.
- Gather invoices, contracts, and security documents early.
Frequently asked questions
Can I keep sending demands after an administrator is appointed?
Generally no — collection against the company usually pauses and you deal with the appointed practitioner instead. General information only.
Will I be told if my customer becomes insolvent?
Known creditors are normally notified, but it is wise to monitor ASIC and published notices yourself as well.
Does an appointment cancel my debt?
No. Your debt remains, but you usually recover it (if at all) through the formal process rather than directly.
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