Services
Problematic Debt Recovery
Problematic Debt Recovery

Insolvency-Based Debt Recovery Melbourne

Insolvency-based recovery options for creditors owed substantial debts by companies that will not, or cannot, pay.

Contact Us

Insolvency-based recovery pathways for Melbourne businesses dealing with a corporate debtor that won't pay.

When Ordinary Debt Recovery has Failed

You have sent the debt to a collection agency. You have issued demands. The debtor has made promises it has not kept, disputed the obvious, or stopped responding altogether. At that point, conventional debt recovery may have run its course. For creditors owed a substantial debt by a company showing signs of insolvency, there may be another pathway: using the insolvency regime to bring matters to a head and, where appropriate, support the appointment of a liquidator.

You may find that the debtor:

  • disputes your claim for payment without a proper basis; or
  • seeks to impose a counterclaim or setoff based on dubious allegations of faulty goods or defective work; or
  • complains that he can’t pay you until he has been paid; or worse
  • has on-sold goods you supplied, received payment and spent your money on other things without paying you.

You may be aware of other suppliers who also haven’t been paid. You’re angry and frustrated. The relationship is destroyed.

While most business owners are honest, hard-working people who want to pay their bills, sadly, there are some who care little for the distress caused to trade suppliers when goods and services provided on credit are not paid for.

Adding insult to injury, the pursuit of your debt through the courts is expensive. Often the potential for recovery is small, and legal action is seen as throwing good money after bad. In a court winding up application the legal fees, court filing fees and process servers can often total $10,000 to $15,000, even where the matter is not defended. Achieving justice at great cost through a court-ordered winding up of the debtor may be a Pyrrhic victory.

Contact Us

A Commercially Structured Pathway

Most creditors are prepared to contribute a modest amount toward a winding-up application, but not the full cost when recovery prospects are uncertain. In many winding-up matters, the creditor who brings the application — commonly called the petitioning creditor — may be entitled to priority payment of certain taxed costs from available company assets, subject to the statutory priority regime and the circumstances of the liquidation. This can make a winding-up application more commercially viable where there are assets or recovery prospects, but it does not guarantee repayment.

Statutory Demands and Winding-up Applications

A statutory demand is a formal notice requiring a company to pay, secure or compound a due and payable debt within 21 days. If the company does not respond in time, it may be presumed insolvent, allowing the creditor to apply to the Court for a winding up order. This can be a powerful pathway, but it should be used carefully. A statutory demand can be issued without first obtaining judgment, but this carries additional risk if the debt is genuinely disputed. Obtaining judgment first can reduce that risk, because the debtor will generally have much less scope to later dispute the debt.

Speculative Fee Arrangements

In suitable matters, IRT Advisory may be able to introduce creditors to independent solicitors, debt recovery specialists or litigation funders who are prepared to consider alternative fee arrangements. This may include speculative or deferred-fee arrangements where some legal costs are payable only if recoveries are made. Any such arrangement is between the creditor and the relevant professional, and all terms should be clearly explained before any commitment is made.

Sharing the Costs

There are usually some out-of-pocket costs involved in assessing and commencing a winding-up pathway, including company searches, solicitor review, Court filing fees and service costs. Where several creditors are owed money by the same debtor, it may be possible to share some of those costs. In appropriate cases, external professionals may also consider funding or deferring part of the upfront expense, depending on the outcome of preliminary due diligence.

Our Role as Appointed Liquidator

In suitable matters, IRT Advisory may consent to act as liquidator if a winding-up order is made. If appointed by the Court, IRT Advisory’s role changes from preliminary assessment to that of an independent liquidator. The liquidator’s duties are owed to the company, creditors as a whole, and the statutory process. Where there are viable recovery prospects, the liquidator may investigate asset realisations, voidable transactions, unfair preferences, unreasonable director-related transactions, phoenix activity, company records, and other potential claims. Recovery is never guaranteed, and many Court liquidations produce little or no return where there are insufficient assets, records or funding. For that reason, we assess matters carefully before agreeing to assist.

Is your business also under financial pressure as a result?

A significant unpaid debt can do more than create frustration; it can place serious pressure on your own cash flow. In some cases, a major customer default can cause an otherwise viable business to fall behind with the ATO, suppliers, employees or lenders. If that has happened, you may need advice on both recovery options and your own company’s financial position.

IRT Advisory assists creditors pursuing insolvency-based recovery options and directors dealing with financial distress in their own businesses. If an unpaid debt has affected your ability to meet your own obligations, we can help you consider whether informal restructuring, early intervention, Small Business Restructuring, Voluntary Administration or another pathway may be appropriate.

Business Turnaround

If you business is under pressure but still viable, early intervention and informal arrangements may resolve the situation.
Business Turnaround

Small Business Restructuring

Eligible companies with liabilities under $1M can can compromise debts while directors remain in control.
Small Business Restructuring

Business Insolvency

Understand your obligations as a directors and formal pathways available when the debts can no longer be met.
Business Insolvency

Information for Directors

Clarity for your personal liability, insolvent trading exposure, and what your legal obligations are right now.
Information for Directors

Through our referral partners in the legal, debt collection and litigation funding industries (all independent professionals) in many cases a way forward can be tailored which takes much of the pain away. In approved matters and subject to certain terms and conditions (discussed and explained to you prior to commencement) the legal work for filing a winding up application can be performed on a speculative basis. Those fees (possibly with an uplift) will only become payable if sufficient recoveries are made from the winding up.

In most cases there are out-of-pocket expenses that must be paid up front, including search fees for initial due diligence, the Court filing fee and process service charges. Typically those costs could be in the vicinity of $2,000, but can be reduced by sharing with other creditors of the debtor, if known, who are willing to engage with and support the process. Whilst the out-of-pocket costs of initial due diligence (variable, but about $200) will always need to be paid up front, subject to the outcome of that process, our referral partners may also agree to fund the out-of-pocket expenses of the Court process as well as the legal fees.

We will consent to act in the winding up of your debtor as part of this service offering. Once appointed by the Court, we will work closely with other professionals to maximise the recovery of assets and claims available to the Liquidator, to ensure you have the best chance of recovering your debt.
Many Court liquidations result in no recoveries by the liquidator, due to lack of identified assets, lack of funding and lack of records. The arrangements we have with a range of independent professionals ensure that if there are assets or claims to be recovered, we have the best chance of achieving a favourable outcome.
There is of course, no guarantee that your costs will be recovered, or that anyone, including us, will be paid. We assess all matters that are presented to us for consideration, and for commercial reasons, may decline to become involved where we consider that the potential for recovery is low. So while we may not be able to assist in every case, please contact us for a confidential discussion of your matter.

Frequently Asked
Questions

Directors must act in the best interests of the company and its creditors once insolvency is suspected. This means avoiding new debts the business can’t repay and seeking advice quickly to stay compliant with their duties.

Yes. The Small Business Restructuring process and other formal tools are designed to give viable businesses a chance to survive.  Even outside formal processes, creditors will sometimes work with directors who are proactive and transparent.

Directors are generally protected by limited liability, but there are exceptions. Personal guarantees, unpaid tax obligations which prompt the issue of Director Penalty Notices by the ATO, or trading while insolvent can expose you to personal risk. Early action reduces these risks.

It varies. Some restructures can be implemented in weeks, while liquidations may take months or longer. Acting early helps keep the process efficient and reduces disruption and costs.

As soon as you suspect trouble. Early advice gives you more choices and better outcomes. Waiting too long can limit your options and increase personal risks.

If a company owes you money and will not pay, the first step is to assess whether the debt is genuinely disputed and whether the debtor company appears to be solvent. Ordinary recovery options may include reminders, formal demands, solicitors’ letters, debt collection or court proceedings. Where the debt is substantial, due and payable, and the company appears unable or unwilling to pay, an insolvency-based recovery pathway may also be considered, including issuing a statutory demand and, if necessary, applying for a court order to wind up the debtor company.
A creditor may apply to wind up a company if the company is presumed insolvent or can otherwise be shown to be insolvent. Commonly, this process starts with seeking a court judgment against the debtor, followed by a statutory demand requiring payment of a debt within 21 days. If the company does not pay, secure or compound the debt, or apply to set aside the demand within that time, the creditor may rely on a presumption of insolvency and apply to the Court for a winding up order. This is a formal legal process and should usually be undertaken with legal advice.
A statutory demand is a formal demand issued under the Corporations Act requiring a company to pay, secure or compound a debt within 21 days. It should generally only be issued where the debt is due, payable, not genuinely disputed and the creditor has a court judgment in its favour. If the company fails to respond in time, it may be presumed insolvent, allowing the creditor to apply to wind it up. A statutory demand can be a powerful tool, but if used incorrectly, it may be set aside, and the creditor may be ordered to pay costs.
A petitioning creditor is the creditor who applies to the Court to have a debtor company wound up. If a liquidator is appointed and there are sufficient asset realisations, the petitioning creditor may be entitled to priority payment of certain taxed costs of the winding-up application, subject to the statutory priority regime and the circumstances of the liquidation. This can improve the commercial position of the creditor who takes action, but it does not guarantee recovery of either the debt or the legal costs incurred.
When a company is wound up, a liquidator is appointed to take control of the company, realise available assets, investigate its affairs, report to creditors and ASIC and distribute funds according to the statutory order of priority. Creditors are usually required to lodge a proof of debt if they wish to participate in any dividend. Secured creditors, employees, priority creditors and unsecured creditors may have different rights and priorities. In many liquidations, returns to creditors depend heavily on the availability of assets, records, funding and potential recovery claims.
Yes, in some circumstances. A liquidator may investigate whether assets were transferred out of the company before liquidation for less than market value, to defeat creditors, to prefer certain parties, or as part of phoenix activity. Potential recovery actions may include claims for unfair preferences, uncommercial transactions, unreasonable director-related transactions, insolvent transactions or breaches of director duties. Whether recovery is commercially worthwhile depends on the evidence, timing, value transferred, solvency position, available funding and the prospects of enforcing any claim.
The upfront costs of pursuing a winding-up application may include company searches, legal advice, preparation and service of documents, Court filing fees and other out-of-pocket expenses. The total cost will depend on the complexity of the matter, whether the debt is disputed, whether judgment has already been obtained, and whether the application is opposed. In some matters, costs may be reduced or shared with other creditors, or alternative fee arrangements may be considered, but creditors should obtain a clear estimate before committing to the process.
No, not always. Winding up a debtor company is a serious step and may not be the most effective commercial option. If the debt is genuinely disputed, the debtor has no assets, or the likely recovery does not justify the cost, other options may be more appropriate. However, where the debt is substantial, the debtor company appears insolvent, and there are assets or potential recovery claims, a winding-up application may bring the matter to a head and create a pathway for investigation by an independent liquidator.
Why us?

You’ll Know What

You’re Getting Builds Wealth Steps to Take Next
We are Transparent Like that. No Gimmicks.
Schedule a Call