Participating in Insolvency Proceedings Initiated By your Supplier

A question we sometimes receive from our small and medium size business clients is what actions they should take when a customer or vendor files for insolvency proceedings while still owing them money. 

In this scenario, let’s imagine that you are a small Sydney-based consulting firm. You paid your regular office supplies vendor $10,000 for a shipment of supplies that was never received.  The promised shipment is a week late.  So you call to check on the status of delivery, the office supply company owner promises that everything is fine and the shipment is about to go out.  You call two days later and find that the number has been disconnected. You do some quick Internet research and find out that the office supply business has instituted insolvency proceedings. 

The question for you as a small business owner is what to do next.  For a small business owner, $10,000 is a significant sum that likely represents a sizable portion of any small business’s budget.  You could simply throw up your hands and write off the $10,000 as a bad debt both mentally and from an accounting perspective.  Or you could consult an experienced commercial litigation and insolvency lawyer to discuss your options. 

Those options include filing a claim with the court if the debtor has initiated voluntary insolvency proceedings with the Australian courts.  Filing a claim in your former office supply company’s insolvency proceedings may not be your first choice.  Insolvency proceedings are long and arduous proceedings that often can drag on for long periods of time.  In addition, there likely will be multiple creditors involved, which could reduce your ultimate recovery. 

However, becoming involved in your former office supply company’s insolvency proceedings often will be your best option.  This may represent the only opportunity to obtain any of your $10,000 back.   The recovery may not be dollar for dollar what you were owed by the delinquent office supply company, but participating in the insolvency proceedings is the only means by which to obtain any of the $10,000 that is owed to you. 

If you are a business owner or executive who is owed money from a debtor who is involved in an insolvency proceeding, contact experienced commercial litigation and insolvency lawyer David Dadic of PMF Legal to discuss your options.