A Creditor’s rights – The new rules of Liquidation

Here’s the situation. Your client is owed money from a customer. Pretty standard right? But what if that customer goes into liquidation? Now that’s a different story. And often, that story doesn’t have a happy ending.

But, it no longer has to be that way. The commencement of the Insolvency Law Reform Act 2016 (Cth) (ILRA) and the Insolvency Practice Rules will result in an increase in powers of creditors in a Liquidation scenario. These changes are set to come into effect in the next few weeks (the 1st of September to be exact)

What does that mean? Well, for starters, Creditors will now have greater powers and rights in a Liquidation. These Rights include:

The ability to request a meeting

  • Creditors can request a Liquidator hold a meeting of creditors if there claims are of a certain dollar value and complies with certain requirements.
  • In a Creditors Voluntary Liquidation scenario, creditors who are non-related entities of the company with greater than 5% of the total value of creditor claims may request a meeting in the first 20 business days.
  • Meetings can be requested at any other time or in a Court Appointed Liquidation by;
  • Greater than 10% but less than 25% of the known value of creditors on the basis those creditors provide the Liquidator with security for the cost of holding the meeting
  • Greater than or equal to 25% of the known value of creditors by resolution, or
  • A Committee of Inspection.
  • A Liquidator must convene a meeting as soon as practicable if the above conditions are met and the request is reasonable.

The right to request information

A creditor has the right to request information at any time if the request is reasonable. The Liquidator must provide the Information within 5 business days unless otherwise agreed.

The right to give directions to a Liquidator

  • Creditors by resolution have the Right to give directions to a Liquidator in relation to the Liquidation.

The right to appoint a reviewing Liquidator

Creditors will have the right to appoint a Reviewing Liquidator by resolution to review a Liquidators remuneration or a cost incurred in the Liquidation. The Reviewing Liquidators costs are paid from the Assets of the company.

Also, an individual creditor with the consent of the Liquidator can appoint a Reviewing Liquidator (in this case the creditor must personally meet the costs of the Reviewing Liquidator).

The right to replace or remove a Liquidator

Creditors will have the right to remove a Liquidator and appoint another Registered Liquidator.

The required number of creditors must reasonably request the meeting. Creditors must also obtain a Consent to Act and a Declaration of Independence, Relevant Relationships and Indemnities (DIRRI) from a Registered Liquidator.

If creditors approve the replacement of Liquidator at a meeting by resolution the existing Liquidator ceases to Act and a New Registered Liquidator is appointed.


So as you can see, the Creditor has new rights and the power to make changes.

If you have a client affected by Liquidation, contact the team at Rapsey Griffiths today. We can help them understand their rights, provide guidance on the overall process  and offer complete peace of mind.