What to do when a client appoints an Administrator

29-November-2010 Commercial Disputes By admin

Don’t panic if your debtor appoints an Administrator


Have you ever been ‘surprised’ to receive a letter regarding one of your clients who owe you money advising that an Insolvency Practitioner has been appointed an Administrator of the company?

This notice may have you scurrying for a copy of the original credit application to check to see if you obtained a director’s personal guarantee. However be careful about rushing off to commence proceedings for enforcement of the debt while the company is in Administration. Section 440D of the Corporations Act 2001 has the effect of staying the commencement and continuance of litigation against a company that is in Administration. The stay lasts for the duration of the Administration.

If you already have a judgment debt, section 440F prevents enforcement for the duration of the administration. Section 440J also prevents you from commencing proceedings against directors under personal guarantees for the period of the administration period, without leave of the Court.

Just because an administrator has been appointed over the Company does not mean that you will not be paid.
You may have a secured interest over goods supplied if your terms of trade have an effective ‘retention of title’ clause. Alternatively, there may be a dividend paid to unsecured creditors as part of a proposed deed of company arrangement or in a liquidation.

Comment from Mark Streeter



Your ability to obtain personal and directors guarantees is a component part of the initial negotiations of the terms of supply. It may also be a function of your bargaining position and your willingness to assume commercial risk. Many customers start off on small orders but then the scale, frequency and amount of the orders increase.  Accordingly having certain credit limits (below which a personal guarantee may not be required) should be periodically reviewed to see whether or not the trading history of the customer has, by their conduct, crept them into a new level where the credit risk policy of your organisation requires the additional protections of a personal guarantee.

Use the “lessons learned” to improve your starting procedures. The introduction of the Personal Property Security legislation in 2010 will provide another opportunity for you to review your terms of contract and require new signups by existing customers. This will provide you an opportunity to regularise your terms of trade and to “update” your documentation, data and business intelligence on your customers and key employees within those organisations.

Found this article useful? Feel free to share it!
Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone