Bad debt

A customer has gone into administration owing you money

As an unsecured creditor you are likely to recover little and slowly. Lodge the proof of debt, check whether you registered a security interest on the PPSR, take advice before supplying further, and plan the business around the loss. A loan here is secured against property, not against the claim.

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Two problems, and only one of them is the money

The obvious problem is the invoice. The larger one, usually, is that the work was already done: the wages were paid, the materials were bought, the subcontractors were engaged, and all of that came out of the business before the customer failed. The loss is not the invoice value, it is the invoice value plus everything the business spent producing it.

And the exposure rarely stops at one customer. A business that has lost a major account has also lost the revenue it was relying on for the next quarter, which is why this situation so often turns into a working-capital problem two months after the insolvency rather than on the day of it.

The first week

1
Find out exactly what has happened.Voluntary administration, liquidation, receivership and a deed of company arrangement are different processes with different consequences for creditors. The appointment notice will say which, and it determines everything that follows.
2
Check the PPSR.If you supplied goods with a retention of title clause, whether you registered a security interest on the Personal Property Securities Register — correctly and in time — is what decides whether you can claim the goods or merely join the queue. Ask your solicitor today, because unregistered claims routinely fail.
3
Lodge the proof of debt properly.With the documentation attached: contracts, invoices, delivery dockets, variations. A well-documented claim is not a guarantee of payment, but a poorly documented one is a reliable way to get nothing.
4
Stop further exposure until you have advice.Continuing to supply on credit adds to the loss. If the administrator wants continued supply, ask how it will be paid and get it in writing.
5
Recalculate the business without that customer.Not just the receivable — the forward revenue, the crew that was allocated to them, the overhead they were carrying. That number is what you actually have to fund.

Where you rank

Paid in this order	Who
First	Secured creditors, from their security
Then	The costs and remuneration of the external administrator
Then	Employee entitlements, with their own priority
Then	Unsecured creditors — which is where a trade supplier sits — sharing what remains

General information about creditor priorities, not legal advice. Your own position depends on your documents and on the type of appointment.

Funding the hole

The important structural point: we do not lend against the debt you are owed. Its value is uncertain and its timing is entirely outside your control, and any facility secured against it would put you at risk of a second failure caused by the first. We lend against equity in real property instead, which means the administrator's decisions do not affect your loan at all.

Two features matter particularly here. The term is open, so an administration that grinds on for a year does not create a deadline you cannot meet. And no financials are required, so a write-off sitting in this year's accounts — the exact thing that causes a bank to decline — does not reduce what is available. A person decides every loan. Every application is read by a Lending Manager and every credit decision is signed off by a person. We do not use artificial intelligence to assess, approve, decline or price a loan.

How much you can borrow

Take the property's value, multiply by 80% for residential security or 70% for commercial, and subtract what is already owing on it. What is left is roughly what is available, between $20,000 and $5,000,000. Several properties can be added together, and the borrower does not have to be the owner — companies, trusts and sole traders — including start-ups, with everyone on title signing. Up to 80% on residential and 70% on commercial. Lower on large acreage, and LVRs may reduce on properties worth less than $800,000.

From the call to the money

Tell us the deal

Amount, purpose, timing, the property and how the loan gets repaid. A Lending Manager gives you an indicative answer on that call — usually in minutes.

Minutes

Conditional approval

Photo ID, a rates notice and your most recent mortgage statement. That is the whole list, and it takes about fifteen minutes.

About 15 minutes

Funds released

As little as 24 hours from a clean, complete scenario. Paid where you tell us — to your account, or straight to the ATO.

As little as 24 hours

What it costs

Priced per file, on the property, the position, the amount and the exit. No rate is published, because a rate with "from" in front of it is the best file's number. How it is priced, and every fee that exists.

✓Upfront: a small commitment fee, payable only once your loan is conditionally approved

✓Valuation fee: none — we don't use valuers

✓Monthly or line fees: none — no monthly, line or account-keeping fees

✓Fee to extend: none — no rollover fees, legal fees or rewriting the loan to extend

Questions we get on the phone

My customer has gone into administration owing me money. What do I get?

Realistically, as an unsecured creditor, often very little and sometimes nothing. Secured creditors are paid first from their security, then costs of the administration, then employee entitlements, then unsecured creditors share what is left. Lodge your proof of debt properly and on time, attend or vote if it matters, and plan the business on the assumption that recovery will be partial and slow.

Should I keep supplying them?

Take advice before you do. Supplying a company in administration is a decision with its own risks, and any new credit you extend is a new exposure. Where an administrator asks you to continue, ask specifically about how the post-appointment supply will be paid and get it in writing — administrators can incur debts personally in some circumstances, and that is exactly the kind of detail worth confirming rather than assuming.

Can I take my goods back?

Possibly, if you registered a security interest on the Personal Property Securities Register and did so correctly and in time. Retention of title clauses that were never registered frequently fail. This is worth checking immediately with your solicitor, because the window to act is short and unregistered claims are routinely rejected.

Can I still claim under security of payment legislation?

In construction, the security of payment regimes have strict timeframes and the insolvency of the respondent complicates them considerably. If you are in that position, speak to a construction lawyer this week rather than next — the statutory timeframes do not pause for you to work out what to do.

Can I borrow against the debt I am owed?

No, and you should be careful of anyone who offers to. The debt is a claim in an insolvency of uncertain value. HomeSec lends against equity in real property instead, which is why a loan here is not affected by whether the administrator ever pays anything.

Does the bad debt stop me borrowing?

No. We do not assess financial statements or run a serviceability test, so a write-off in this year's accounts does not reduce what is available. That is frequently why a business that has just taken a loss can still raise money here when a bank has declined it for the same reason.

How long can I hold the loan while I wait for the administration to resolve?

As long as needed. The term is open with no maximum and no fee to extend, and an administration or liquidation that runs for a year or more does not put the facility into default. Where a distribution does eventually arrive it can be paid straight against the balance — ad-hoc paydowns from $10,000 are available once the capitalised-interest period has passed.

Should I write it off now or wait?

An accounting and tax question rather than a lending one, and worth asking your accountant promptly, because the timing of a bad debt deduction and the GST adjustment on a written-off debt can both matter to the current year.

Talk to a Lending Manager

Tell us the size of the hole and the property behind you, and you will have an indicative figure on the call. 1300 93 83 87, Mon–Fri, 8:30am – 5:30pm Melbourne time.

Other pressure points

Where to start when cash has run out Cannot make payroll BAS due and cannot pay it A supplier has stopped supply The bank has called the facility ATO intent to disclose a tax debt Served with a winding-up application Small business restructuring explained A statutory demand has been served A Director Penalty Notice Clearing an ATO tax debt

Sixty seconds, no documents

See if you qualify in sixty seconds

Three short questions, no credit check to apply and no financial statements. A Lending Manager reads it and calls you back with a real answer — not a call centre, not an algorithm.

That's the HomeSec Advantage.

See if you qualify Call 1300 93 83 87Mon–Fri, 8:30am – 5:30pm Melbourne time

Reviewed by Matt Hempel, National Credit Manager