Who gets paid first when a customer goes into liquidation?

When a New Zealand company goes into liquidation, its creditors are divided into two groups: secured creditors, who registered a security interest, and unsecured creditors, who are everybody else. Some debts are given preference by law. After that, it is a queue. Most suppliers and subcontractors are unsecured, which puts them near the back of it.

What does the queue look like on paper?

An electrical contractor we work with was owed a good sum by a customer that went into liquidation. For a while the customer kept in touch. They were promised two or three times that it would be sorted, that the money was just waiting to clear. Then it went dead quiet, and the next thing to arrive was the liquidator’s report.

We went through that report with them, and it is laid out the way most of them are. The first part is the company’s situation: where it stands, and in this case, that it owed $850,000 in GST. The next part lists the secured creditors, everybody who registered an interest on the Personal Property Securities Register (PPSR). Below that is everybody else, the unsecured creditors. That is where our client was.

They were far from alone. In the month after that collapse we spoke to about half a dozen other local businesses hit by the same liquidation, and the report showed a great many more.

Who comes before you?

The liquidator is there to turn what the company owns into money and pay it out in the order the law sets. Secured creditors hold security over assets, which puts them in a very different position from everyone below them. Some claims are preferential, which means the law puts them ahead of ordinary unsecured debts. They include certain amounts owed to employees and certain tax owed to Inland Revenue. Schedule 7 of the Companies Act 1993 sets out which claims are preferential.

After that, it is a queue. Whatever is left after the assets are realised goes into a pool, and what any one unsecured creditor receives depends on what is in it and how many others are in it with them. Sometimes a small amount. Often nothing.

The order, as the law sets it

Under section 312 and Schedule 7, the money goes out in this order.

1. Secured creditors, from the assets they hold security over. A bank with a mortgage over a property, or a supplier with a registered security interest over the goods it supplied, is paid from those assets. There is one exception that matters to suppliers. Where the security is over the company’s debtors or stock, the preferential claims below can be paid out of those first, unless it is a purchase money security interest, taken over goods you supplied and registered in time.
2. The costs of the liquidation. The liquidator’s fees and expenses, the reasonable costs of whoever applied to the court to put the company into liquidation, and the costs of any creditor who paid to protect or recover assets for everyone.
3. Employees. Wages for the four months before the liquidation, holiday pay, redundancy compensation, amounts deducted from their pay, and KiwiSaver contributions, up to a cap for each employee.
4. Layby customers, for money paid towards goods on layby.
5. Certain meeting costs incurred by someone other than the company or liquidator in organising a creditors’ vote on a proposed compromise.
6. Inland Revenue and Customs. Unpaid GST, the PAYE and other tax the company deducted and did not pass on, and customs duty.
7. Unsecured creditors. Everybody else. This is where most suppliers and subcontractors sit, along with any secured creditor for the part of their debt their security did not cover.
8. Shareholders, if anything is left.

Each group is paid in full before the next receives anything. When there is not enough to pay everyone in a group, they share what there is in proportion to what they are owed. That is why the unsecured list so often receives little or nothing: by the time the money reaches it, most of it has gone.

Is receivership the same thing?

No, and the difference matters to you. Receivership is when the ambulance has arrived. The doctors are there, using life support to try to keep the company alive and trade it through. You may get a letter saying they are still trading, that they intend to pay you by a certain date or in instalments, and asking you not to take them to court while they do. Then you decide whether to keep trading with them to try to get your money. Liquidation is when the company is dead. The liquidators are the mortuary, there to see what can be recovered for the people owed and to wrap it all up. Either way, it is no longer between you and the owner. It is in the hands of a third party, and what you signed decides your outcome.

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.

Why most suppliers sit at the back of the queue

Our client said it themselves: in hindsight, the warning signs may have been there. Maybe. But they were in a market where they needed the work, so they took on more risk. And they had never been caught like this before, so why would they have been thinking about it? That is true of most of the businesses we see in this position. They are good at what they do, and the way they set up their jobs worked, right up until the day it didn’t.

Part of it was never visible to them at all. A company owing $850,000 in tax did not show that on a credit report. Since late 2025, Inland Revenue has begun sharing some large company tax debts with credit agencies, but only in limited circumstances, and not where the company has a payment arrangement in place. Here is exactly what it will share, and when you won’t see it. We would like to see that go further, because the ordinary business giving its customers credit has nothing like the view of a customer’s position that Inland Revenue has. We made that case directly in our businesses were never intended to be banks.

And by the time it was obvious, it was too late to do anything about it. A customer who has stopped talking to you is not going to sign a personal guarantee or a security agreement. If you wait for something to go sideways before you secure yourself, the horse may already have bolted.

How to strengthen your position in the queue

The order is set by law, and where you sit in it is decided by what you put in place before the work started. Position is something you take. 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?

There are three documents that do this work, and each does a different job.

• Your terms of trade are your day-to-day operating agreement. They set out roles, responsibilities and what happens if you are not paid, and a signed acceptance is what you point to if it ever comes to court or a liquidation.
• A personal guarantee, now usually called a deed of guarantee and indemnity, gives you a route to the guarantor’s own assets. If the company goes into liquidation or receivership, that process carries on over there, and you can carry on recovering what you are owed over here.
• A general security agreement, registered on the PPSR, is what makes you a secured creditor. It is what moves you from the bottom list on that report to the one above it.

The best time to get any of them signed is at the beginning of a job, while everyone is still getting on. And it helps to see what you are really doing when you work on credit. Until you are paid, you are funding your customer’s project, the way a lender would. Think of yourself as the credit provider you already are, and give yourself permission to act like one: check who you are lending to, and ask for security where the job warrants it.

If your customer has only just gone under, start with what happens to your money when a customer goes into liquidation, and you can check a name on this week’s list of companies in liquidation.

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.