Understanding Customer Liquidation – What It Means For You

Sometimes even with the best credit control procedures in place and a strong product offering, business can still go into liquidation. And most business owners are worried about preventing it from happening to them, which is always a great start.

But what if it isn’t you that goes into liquidation, but one of your customers? Say your biggest account suddenly announced that they had gone bust – seemingly overnight –  without paying your last invoice. What would you do?

Understanding Customer Liquidation

When a company is facing financial difficulties, it might be placed into liquidation. Unlike administration, the primary purpose of liquidation is to sell off the assets of the company and dissolve it. When a business goes into liquidation, their affairs, business and the property of their company are put under the management of an appointed outside person or agency. In liquidation, there is no looking to save the company as ongoing concern, so the process is usually much quicker. The agency in charge of the business will evaluate the company’s assets, pay off any creditors remaining and dissolve the business completely. So if a customer of yours goes into liquidation while owing you money, you will be on that list of creditors.

How Are Assets Distributed To Creditors?

The OR (official receiver) or IP (Insolvency practitioner), will be in charge of identifying creditors and distributing the assets of the insolvent company to them. During this process, the OR or IP will identify the most important creditors, and these will be paid off first. Some creditors will rank more highly than others, and payments are made in order of precedence. Generally speaking, there are 4 main types of creditor:

• Shared Creditors: These creditors have security registered at Companies House. When they have a fixed charge over some of the assets of the business, the secured creditor will be paid out of the sale proceeds from those specific assets, once the cost of selling has been deducted. There is also such a thing as a floating charge, which means the secured creditor will be paid all net proceeds from the sale of those assets, after the preferential creditors have been paid.
• Preferential Creditors: Preferential creditors primarily consist of employees – their wages, accrued holiday and so on. This class of creditor ranks ahead of all other creditors when it comes to the sale of assets without a fixed charge.
• Unsecured Creditors: This is where all other non-secured and non-preferential creditors fall. These are usually where the majority of creditors are found, and will include standard clients and suppliers.
• Shareholders: These are the last class of creditor to receive a distribution, and they will only receive their pay out after everyone else has been paid in full.

What Happens If You Hear Nothing?

Of course, there are time when customers go into liquidation and don’t notify their suppliers. It goes against best practice, but it does happen. But if you suspect a customer has gone into insolvency, how do you handle approaching them to claim your share of their liquidated capital? Well, the first thing you need to do is confirm that they are actually insolvent. You can do this by:

• Searching Companies House for a declared company insolvency.
• Searching the Individual Insolvency Register for the declared bankruptcy of an individual, or an individual member of a partnership.
• Contacting the Insolvency Enquiry Line, either by calling 03006780015 or emailing them at enquiryline@insolvency.gsi.gov.uk
• Checking the public notices sections of the The Gazette.

Once you have confirmed that they are, in fact, insolvent, you can reach out them through their OP (official receiver) or IP (insolvency practitioner). You can then notify them that you are a creditor, and they will as you to fill out a proof of debt template. From there, the process is the same as we detailed earlier.

If all of this is making your head hurt (and we wouldn’t blame you), there is another way. At Debtcol, we are specialists in helping businesses extract money they are owed from their customers. Our team of experts handle the process of debt collection from insolvent businesses in a tactful, respectful and effective manner. With years of debt collection under or belts, we can help you with one off or multiple insolvency claims, ensuring the money you’re owed ends up in your pocket as fast as possible. For more information, please just get in touch with us today.