Your customer has gone into liquidation. Here’s what happens to your money.
What is already decided, what you can still do this week, and why the most useful moves from here are about your other customers.
By Mel Curwood. More than 25 years working across New Zealand business, and nearly a decade helping trades, contractors and blue-collar businesses get paid in full, on time, every time. Over 350 of them.
If a customer has gone into liquidation owing you money, what happens next is largely decided by what was signed before the work started. Most trade creditors are unsecured, and unsecured creditors usually recover little or nothing, often months later. What you can still act on is whether anyone gave a personal guarantee, whether you hold anything of theirs, and every other customer on your books.
Plenty of people find out the same way strangers do, through the news or a notice. A customer who seemed solid, sometimes one with years of history, and then the payments stop and the word liquidation arrives. You may have funded weeks or months of their work by then. The information that would have warned you was never available to you, which we come back to below, because it matters for what you do next.
What happens to money you’re owed when a customer goes into liquidation?
A liquidator is appointed to wind the company up. They take control of what the company owns, turn it into money, and pay it out to the people the company owes in a set order. The appointment is published in the New Zealand Gazette, and we keep this week’s list of companies in liquidation if you want to check a name.
It moves quickly on the ground. When a company on a building project goes into liquidation, the site gets shut down, and once the liquidator steps in, anything physically on that site can be seized as part of the company’s assets. That is why you will hear people say to go and get your gear off.
The liquidator runs the process from there, and they will be in touch with creditors about lodging a claim. This step you do not have to chase.
Which company actually owes you?
Check this before anything else. Your agreement was between two legal entities, your company and theirs, and the name on your invoices is not always the legal name. We have seen invoices on liquidators’ reports without a legal name on them. Look the customer up on the Companies Register, confirm the entity that is in liquidation is the one you worked for, and make sure your claim uses its correct name.
What is worth establishing this week?
It depends entirely on what was signed, and that is the honest answer. Decisions made months ago are deciding this now. Three questions tell you where you stand.
Often there genuinely isn’t very much you can do. But it is still worth looking at what can be attempted. Having something practical to work through is better than sitting helplessly and watching it unfold, and occasionally it does put you in a slightly better position.
Did anyone give a personal guarantee?
If a director personally guaranteed the account, the money owed can still be pursued through them. A guarantee is a separate promise from a different person, and it does not disappear with the company. It is one of the first things we ask about any unpaid account: what did they sign, and what pathways and leverage do you actually have?
Are you holding any of their property or equipment?
A vehicle in the workshop, or plant on site. The real question underneath it is whether what you are holding outranks any security already registered over it, and that depends on the situation. If it is your own gear on their site, a registered interest in those goods is what lets you get it back.
What will the liquidator need from you?
A claim for what you are owed, with the invoices behind it. The Gazette notice names the liquidator and how to reach them. Put your claim in, even if you expect little back, so you are in the queue. We explain how to make a claim on its own page.
Follow the liquidation on the Companies Office
Look the company up on the Companies Register by its correct legal name, and follow what is happening through the reports and documents filed there. Then put the director’s name into a director search, to see whether other companies of theirs are also affected. The full creditor lists are not always on the register, so here is where else to look, and how to read the report.
Secured or unsecured: where do you sit in the queue?
A liquidator’s report divides creditors into two lists, secured at the top and unsecured at the bottom. Secured creditors are the ones who registered a security interest on the Personal Property Securities Register (PPSR). Unsecured creditors are everybody else. Some debts are given preference by law, and after that, it is a queue.
That is why position is something you take rather than something you are given. A business holding a general security agreement with its customer, registered on the PPSR at the highest level, has real standing. If that customer later wants bank lending, part of the registration has to be temporarily lifted so the bank can rank ahead, and the business has a say in that. If you are securing your interest in a $100,000 project and a bank wants to lend a similar amount, why should the bank automatically rank ahead of you?
When the report arrives, look for which list you are on. Most trade creditors will find themselves on the second one. We explain how to read a liquidator’s report on its own page, and walk through a real one in who gets paid first when a customer goes into liquidation.
Will you get anything back?
What is left after the assets are realised goes into a pool. What any one creditor receives depends on what is actually in it, where they sit in the queue, and how many others are in it. Sometimes a small amount. Often nothing. There is no fixed proportion, which is why a figure is no help: it invites you to plan around a number that does not exist.
If there is a guarantee, pursuing it is a separate process with its own limits. Sending a debt to collection is not a magic bullet. New Zealand’s debt collection rules are heavily weighted towards the people who owe the money: if they say they dispute it, collection stops and it moves to a resolution process. Even when a court agrees the money is owed, that does not mean it gets paid. You go back to the courts to enforce it, and only then does it come out of wages or assets.
Why couldn’t you see this coming?
Because the information that would have told you often is not available to you. You can run a credit check on a company before you take a project on and not see that it owes Inland Revenue $500,000. Inland Revenue has begun sharing some large company tax debts with credit agencies, but only in limited circumstances, and a payment arrangement with Inland Revenue keeps it off the report. We set out exactly what Inland Revenue says it will share, and when you won’t see it. Inland Revenue then puts the company into liquidation, and sits at the top of the list to be paid.
Inland Revenue can see a great deal of what is happening financially inside a business. The ordinary business waiting to be paid has nothing like that visibility or protection, and it may not know its customer is struggling until the payments stop altogether. So keep doing your due diligence, and know that there are things in the background it cannot always show you. We made this case to Inland Revenue directly, in our businesses were never intended to be banks.
What can you still do about your other customers?
A security interest cannot be registered on the PPSR after the fact. For this customer, the window closed before you knew there was one, and that is the part that stings. It is also why almost everything useful from here points at the twenty or thirty customers still on your books. You can find out where you stand with all of them, this week, without damaging a single relationship. Most businesses never get that clarity until it is forced on them.
Review what is actually signed, across the whole book
For a security interest, the customer must have signed it, granting the authority, and it must then be registered on the PPSR within a limited window after signing (check the current requirement). Security you never got signed, or got signed and never registered in time, is security you do not have.
Run a health check, before any credit check
A credit check affects the customer’s credit score and leaves a footprint. A health check gives you a current read on where your customers sit for capacity and creditworthiness, without doing that. Centrix, Equifax and others offer both. If you are reviewing twenty-five accounts after a liquidation, the health check shows you where the risk sits without touching twenty-five relationships. Consent matters where the information is about a real person, such as a director or guarantor. A check on a company can simply be run.
Reduce the credit you extend
This is the move that actually changes the arithmetic. The only real debt prevention is not providing credit at all, and it is a journey to get there. Every step along it, a bigger deposit, a shorter gap between the work and the invoice, security on the larger jobs, shrinks what the next liquidation can take from you.
It is worth the effort. At a 10% net margin, replacing $10,000 lost to one customer takes $100,000 of new sales. Lose $50,000 and it is $500,000. And the wages, materials and site costs for the original job were already paid, so the money had left your business before it failed to arrive.
80% of getting paid on time happens before you start the job. That's where the work begins.
What has to change so this can’t happen again?
If you are going to be treated like a bank, think like one. No bank lends $10,000 or $1,000,000 without the right paperwork, a security interest and a credit check. Your customers are asking you for the same thing every time you start work before you are paid.
- Get the biggest deposit you can, if the work is not paid in advance.
- Invoice faster, with a shorter due date. The smaller the gap between the work and the money, the less you are carrying if a customer fails.
- Register your interest in goods you leave on a site, and on the bigger jobs, in the customer’s business through a general security agreement.
- Apply the same rules to everyone, good payer or bad, friend or stranger. This is simply the way your business operates.
If more of us operated cash-flow positive, with a lot more paid in advance, we wouldn’t have such a big crash at the bottom of the hill when the downturns come. More people would have the money they are owed in their own pockets, working in their own business.
If it is a customer who is still trading but has stopped paying you, start with what to do when you are not being paid for work you have done.
This page describes the process in general terms, from our own research and commercial experience. Do your own research, and get legal advice for your own situation.
You were handed this. What you do about everyone else is still yours to decide, and you do not have to work it out on your own.
A Paid Right Session is time set aside to work through what you are actually exposed to across the rest of your customers, and to make the decisions that stop this from happening again.