A business is insolvent if it is unable to pay its debts when they are due for payment.
If a business is insolvent, it must not continue to trade.
A business may go into external administration if it:
- has gone insolvent
- is at risk of becoming insolvent.
Types of administration
There are 3 main types of external administration:
- Voluntary administration—where an administrator takes control of the business to try to work out a way to save it.
- Liquidation—where a liquidator takes control of the business to wind it up in an orderly and fair way.
- Receivership—where a receiver is appointed by a secured creditor to sell assets to repay the debt owed to the secured creditor.
Dealing with an insolvent business
A business may go into external administration:
- after you buy goods or services from them
- before you receive the goods or services.
You usually can’t get your money back in these circ*mstances. This includes redeeming your gift cards.
If this happens, you should cancel any:
- credit or debit payments still pending (talk to your bank or card provider)
- ongoing direct debit arrangements (talk to your bank)
- outstanding money orders (talk to Australia Post).
Claim as a creditor
You will need to register as a creditor to recover any finalised payments, including cash. The way to register as a creditor depends on the type of business.
If the business is a registered company:
- ask the Australian Securities and Investments Commission (ASIC) if the business has an appointed receiver or administrator
- contact that receiver or administrator and register with them as a creditor.
If the business is owned by a proprietor:
- ask the Australian Financial Security Authority (AFSA) if the proprietor has declared personal bankruptcy
- ask AFSA how to register a creditor.
You cannot claim as a creditor if the business gives you the goods or services before they close down.
Deceptive conduct
Businesses must not take your money if they know they cannot provide their goods or services.
This is deceptive conduct if:
- they knew they were going out of business when they took your money
- they should have known that this would stop from them giving you their goods or services.
If you believe a business has done this, you can make a complaint to us.
Example of deceptive conduct
A man goes into a local fitness centre and asks to join. The attendant knows that the centre will close down in the next few days, but sells him an annual membership anyway. The business has acted deceptively.
Insolvency in licensed industries
Some businesses need to have a licence or registration to work in their field. These fees help pay for funds that will reimburse consumers in certain situations. You may be able to claim from one of these funds if you are trading with a licensee who goes out of business.
Industries that offer these types of funds include:
Make sure you get independent legal advice to find out your options. You may need to lodge a claim with the Queensland Civil and Administrative Tribunal to access some of these funds.
- Last updated:
- 16 May 2022
