Liquidation Has Started, but Your Payment Has Not Arrived: What Can a Creditor Do?
When a company enters liquidation, creditors often face a tough situation. They may have supplied goods, provided services, or lent money, yet the company still owes them payment. Even after a liquidator takes charge, creditors may wait for months while the liquidator checks claims, sells assets, and distributes the money.
For creditors, the key question is not just whether the company owes them money. They must also check whether they filed their claim correctly, whether the liquidator accepted the right amount, and whether the law gives their claim the correct payment priority under the Insolvency and Bankruptcy Code, 2016 (IBC).
1. What Happens When a Company Enters Liquidation?
Chapter III of the IBC sets out the main rules for company liquidation. The liquidator takes charge of the process, identifies and sells the company’s assets, checks creditor claims, prepares the list of stakeholders, and distributes the available money under the law.
However, the start of liquidation does not guarantee payment to every creditor. Recovery depends on the assets available, the total admitted claims, the creditor’s legal status, the order of payment under the law, and the costs of liquidation.
2. Why Is Your Payment Delayed?
Several issues can delay a creditor’s payment:
- Pending claim: The liquidator has not yet accepted or finished checking your claim.
- Lower claim amount: The liquidator has accepted less than the amount you claimed.
- Missing documents: You have not supplied key invoices, contracts, account statements, or proof of debt.
- Disputed status: The liquidator or another party disputes your claim type or security rights.
- Lack of funds: The liquidator has not yet sold the assets, or the sale proceeds cannot cover all claims.
- Legal disputes: Court cases, asset sale issues, or other legal matters have slowed the process.
The right response depends on the cause of the delay. Before sending repeated demands, creditors should review their claim records and find out what has held up payment.
3. How Does Section 53 Affect Your Payment?
Section 53 of the IBC sets the order in which the liquidator distributes the money from asset sales. The law gives priority to certain claims, including liquidation costs, specified workmen’s dues and secured creditor claims, employee dues, unsecured financial debts, government dues, and other claims in the order set out by the section.
Your place in this order depends on the type of debt and the legal conditions that apply. A trade supplier, an unsecured lender, an employee, and a secured creditor may have different rights to the available funds.
Even if the liquidator accepts your claim, you may not recover the full amount. If the company does not have enough money, you may receive only part of your admitted claim or, in some cases, no payment at all.
4. What Should You Do Before Hiring a Lawyer?
Before you seek legal help, gather the main records for your claim. A lawyer can then review the facts and identify the next steps.
Check these documents:
- Liquidation notices: Review the public announcement and other notices issued during the process.
- Proof of claim: Keep a copy of the claim you filed and any reply from the liquidator.
- Debt records: Gather contracts, invoices, purchase orders, loan papers, and account statements.
- Stakeholder list: Check how the liquidator has recorded your claim and creditor status.
- Payment records: Review any available details about asset sales and payments to creditors.
- Court orders: Collect relevant orders from the National Company Law Tribunal (NCLT) and, where applicable, the National Company Law Appellate Tribunal (NCLAT).
These records can help your lawyer find out whether the delay relates to claim checks, the amount accepted, payment priority, or another issue under the liquidation process.
5. When Can a Lawyer Help?
A lawyer can review your claim, write to the liquidator, check the amount accepted, and examine how the liquidator has calculated your share of the available funds. Where the facts and law support it, your lawyer may also advise you on proceedings before the NCLT.
If the liquidator rejects your claim or accepts a lower amount, Section 42 of the IBC provides a specific right of appeal. The law sets a short time limit for this appeal, so creditors should act promptly and seek legal advice as soon as they receive the liquidator’s decision.
Other disputes may require a different legal remedy. Your lawyer should review the facts before recommending a course of action.
Creditors should not assume that a demand notice or a general recovery case will automatically secure payment from a company in liquidation. The legal strategy must account for the insolvency process and the powers of the relevant authority.
How Lex Pleaders & Co. Can Help
Lex Pleaders & Co. can help creditors review their documents, check the status of their claims, assess possible legal remedies, and prepare suitable representations or court filings. The right approach will depend on the facts of each case and the law that applies.
Has a company entered liquidation while your payment remains pending? Start by checking how the liquidator has recorded your claim, whether the amount is correct, and what legal options remain open to you. A timely legal review can help identify missing documents, errors in the claim record, and important deadlines.
Contact Lex Pleaders & Co. for a legal review of your insolvency or liquidation claim.