What To Do If You’re an Unsecured Creditor
If you’re owed money by a business that’s gone into liquidation, voluntary administration, or restructuring (and you don’t hold security over any of its assets), you’re considered an unsecured creditor. This is a common but often challenging position to be in.
In this article, we explain what it means to be an unsecured creditor, how the process works in Queensland, and what steps you can take to protect your rights and improve your chances of recovering what you’re owed. We also explore the role of the Committee of Inspection and how Gear & Co Lawyers can assist.
What Is an Unsecured Creditor?
An unsecured creditor is any person or business owed money without holding a security interest over the debtor’s assets. This is different from a secured creditor, such as a bank, that may have a registered interest over property or equipment (for example, through the Personal Property Securities Register (PPSR)).
Unsecured creditors often include:
Suppliers of goods or services
Landlords owed rent
Employees owed entitlements (who have a statutory priority over other unsecured creditors for most of their claims)
Customers owed refunds or deposits
Tax authorities (in certain contexts)
The rights of unsecured creditors during insolvency are primarily set out in the federal Corporations Act 2001 (Cth). The system and the professionals involved are regulated by the Australian Securities and Investments Commission (ASIC).
What Happens to Unsecured Creditors in Insolvency?
When a company enters liquidation, voluntary administration, or small business restructuring, the liquidator or administrator identifies all outstanding debts and classifies creditors into secured and unsecured categories.
Unfortunately, unsecured creditors are typically paid last, after secured creditors, employees, and liquidation costs. In many cases, there may be little to no funds left to distribute to unsecured creditors.
That’s why it’s critical to formally lodge a proof of debt and engage early with the process. For more on this, see our article on how debt recovery works for small businesses in Australia.
What to Do if You’re an Unsecured Creditor
If you’ve received notice that a debtor has gone into external administration, here’s what to do next:
Review the notice sent by the administrator or liquidator. This will outline key dates and your rights to lodge a claim.
Submit proof of debt. This is a formal statement setting out what you’re owed, with supporting evidence such as invoices and contracts.
Stay informed by attending creditor meetings or joining the Committee of Inspection (COI) if one is formed.
Exercise your voting rights on matters like approving the liquidator’s remuneration or deciding the future of the company.
You can also seek legal advice to assess whether there are other recovery options available, such as pursuing a director personally or engaging with the external administrator in relation to funding potential actions against a director personally or third parties..
What Is a Committee of Inspection?
During administration or liquidation, a Committee of Inspection (often referred to colloquially as a “Committee of Unsecured Creditors”) may be formed. This committee plays an advisory and oversight role, helping to ensure that the external administrator is acting in the best interests of creditors.
The committee usually:
Reviews reports and proposals from the administrator
Consults with the administrator on key decisions, such as selling assets or continuing the business.
Approves the administrator’s fees and costs.
Participation in such a committee is voluntary, but it’s a powerful way to stay involved and protect your interests, particularly if you are a significant creditor.
Key Considerations for Unsecured Creditors
If you are an unsecured creditor, it’s important to understand:
Timing is everything. The earlier you act, the better your prospects of recovering something.
You have limited priority in insolvency, but this doesn’t mean you have no rights.
Legal advice can help you explore alternatives like enforcing judgments, negotiating settlements, or identifying directors’ liability.
Legal Support for Unsecured Creditors in Queensland
At Gear & Co Lawyers, we know how stressful it is to be an unsecured creditor and how vital timely action can be. With deep expertise in insolvency and litigation, we help clients act fast, protect their interests, and maximise recovery. From unpaid invoices to complex liquidations, we’ve guided businesses across construction, finance, manufacturing, and more. Whether you’re negotiating with administrators or considering legal action, we’re here to support you with clarity and confidence.
For further reading, explore our insights on Understanding Voluntary Administration and Defending an Unfair Preference Claim. If you’re unsure where to start or want to understand your rights as an unsecured creditor, contact Gear & Co Lawyers on (07) 3709 2547 or info@gearandco.com.au.
While attempts have been made to ensure the currency of information contained in this publication, it is not guaranteed. This publication is intended to provide only general information on matters of interest. It is not intended to be comprehensive and does not constitute and must not be relied upon as legal advice. You should seek legal or other professional advice that is specific to your circumstances.
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