A customer is in administration or liquidation: what happens to my invoice?

What's the difference between administration and liquidation?

• Administration: an insolvency practitioner takes over to rescue the company or get a better result for creditors than immediate liquidation. The business may keep trading, often ending in a sale (sometimes a "pre-pack"). A statutory moratorium stops creditors suing or enforcing without consent.
• Creditors' voluntary liquidation (CVL): the directors accept the company is finished and put it into liquidation; a liquidator sells everything and distributes the proceeds.
• Compulsory liquidation: a creditor (often HMRC) petitions the court to wind the company up. The petition is advertised in The Gazette before the hearing, one of the most valuable early warnings you can get, because banks typically freeze the company's account when they see it.
• Company voluntary arrangement (CVA): a deal to repay creditors a proportion over time while the company keeps trading.

Where do I stand in the queue?

Insolvency law pays creditors in a strict order:

1. Fixed-charge holders, from the assets they hold security over.
2. The insolvency practitioner's fees and expenses.
3. Preferential creditors: employees' wages and holiday pay, and (since December 2020) HMRC for VAT and PAYE the company collected.
4. Floating-charge holders (minus a capped "prescribed part" set aside for unsecured creditors).
5. Unsecured creditors, trade suppliers, you: sharing what's left pro rata.

For unsecured creditors, recoveries in the pennies-in-the-pound range are normal, and the process takes months to years. This is why the weeks before an insolvency are worth so much more than the weeks after.

What should I do in the first week?

1. Stop shipping on credit: new orders should be cash in advance (an administrator trading the business must pay for post-appointment supply as an expense).
2. Assert retention of title immediately if your terms include an ROT clause. Write to the administrator or liquidator, identify your goods, and ask to inspect. ROT claims fail through delay more than anything else.
3. Register your claim: submit a proof of debt to the insolvency practitioner (the appointment notice tells you who they are), including late-payment interest you're entitled to.
4. Claim VAT bad debt relief: once the debt is six months overdue and written off in your books, you can reclaim the VAT you paid HMRC on those invoices.
5. Vote: proofs of debt let you vote in creditor decisions (on the administrator's proposals, or a CVA), where terms can genuinely change outcomes.

Can I just stop supplying them?

Not necessarily. Since the Corporate Insolvency and Governance Act 2020, clauses that let a supplier terminate a contract because the customer entered an insolvency procedure are generally unenforceable: you can be required to keep supplying (you can still terminate for other breaches, with the insolvency practitioner's consent, or with the court's permission, and you can require payment for new supply). If a big customer fails, take advice before pulling the plug on a contract.

Could I have seen it coming?

Usually, yes. Administrations and liquidations are preceded by a paper trail on the public record: new charges, overdue accounts, director resignations, and (for compulsory liquidations) a winding-up petition advertised in The Gazette weeks before any order. Kestrel Alert watches that trail for every company on your list and emails you as each event is filed, so "first week" actions can start before the appointment, not after.

This guide is general information, not legal advice, for a significant exposure, speak to a solicitor or insolvency practitioner early.