When a business goes bust

On this page:

  • How insolvency can affect consumers
  • Check if a business is insolvent
  • Claiming from an insolvent business
  • If your product needs repair or replacement
  • Administration, receivership and liquidation explained

A business is considered insolvent if it can’t pay its bills on time.

Sometimes, an insolvent business can keep running if it has an administrator helping it.

Other times, the business may have to stop operating right away and go into liquidation.

How customers and creditors are affected depends on what happens to the business after it becomes insolvent.

Business experiencing difficulty are encouraged to contact Small Business Development Corporation who have a list of free financial counsellors to help businesses.

How insolvency can affect consumers

Consumers can lose money if the business becomes insolvent when they:

  • paid in full for products or services they have received
  • paid a deposit, such as in a lay-by agreement or interest-free offer
  • bought a credit note, gift card or voucher or
  • returned a product for a repair and have not collected it.

To recover your money, you will need to register with the administrator or liquidator as an ‘unsecured creditor’.

Unsecured creditors are last to be paid. Secured creditors (such as banks), employee entitlements and administrator costs are paid first.

Often, there are no funds remaining for unsecured creditors.

The Corporations Act 2001 sets the order in which a trader’s creditors are paid.

Your rights as an unsecured creditor

  • If the business is still running, you might still get the goods or services you paid for, but you might not be able to use gift cards, vouchers, or credit notes.
  • In most cases you can no longer start or continue legal action against a business in administration or liquidation. Permission from the Supreme Court may be given in limited cases.

Check if a business has become insolvent

Australian Securities and Investments Commission (ASIC) published notices lists businesses which have:

  • wound up (stopped trading)
  • gone into voluntary administration
  • become insolvent
  • appointed a liquidator.

Administration notices also often appear in newspapers or on the business’s website.

Claiming from an insolvent business

Step 1: Claim your product

You may be able to claim your product(s) if:

  • You have a contract to buy them (excluding lay-bys) and
  • You have paid for them in full or
  • You pay the liquidator the balance of any amount owing.

You may need to organise collection from the business if your product(s) is released by the liquidator.

Step 2: Request a chargeback

  • If you paid with a credit card (or selected credit on your debit card) contact your card provider and request a ‘chargeback’ as soon as possible. There are time limits depending on the card.
  • This effectively reverses the credit card charge, and is similar to a refund.
  • A chargeback can take up to one year to be finalised. For more information visit our credit card chargeback page.

Step 3: Register as an unsecured creditor

You can register with the administrator or liquidator as an unsecured creditor if:

  • If you did not pay with a credit card or waiting on a chargeback
  • unable to claim your product(s).

The insolvency process will decide if you get the goods, a part of your money back, or nothing.

If your product needs to be repaired or replaced

If the product comes with a written warranty and is still within the warranty period, you should contact the manufacturer.

The consumer can request a chargeback or submit a claim as an unsecured creditor of the trader if the product was faulty close to the time of purchase.

Administration, receivership and liquidation explained

A business may become insolvent if it is unable to pay its debts when they are due.

An insolvent business can be put into:

  • Voluntary Administration: The business’s leaders might ask someone to take charge to try to save the business. If the business can’t be saved, it might then go through liquidation.
  • Receivership: a receiver takes control of the business to protect the interests and assets of the business’s secured creditor(s). They can be appointed during voluntary administration and liquidation. They may not necessarily close the business.
  • Liquidation: a liquidator winds-up the business. They are appointed by the business’s shareholders, secured creditors or a court, to take control of the business. They aim to legally close the business, sell all assets and fairly distribute proceeds to creditors.

If the insolvency relates to a person, rather than a business, it is called ‘bankruptcy’ or ‘personal insolvency agreements’.

For more information, see the Australian Financial Services Authority website

Last modified: