Customer in administration or liquidation? What to do next

Being told that a customer has gone into administration or liquidation is one of the worst calls a credit controller can take. The terms sound alike but they mean different things, and the right next step depends on which one you are dealing with. This guide covers England and Wales at a high level. Scotland and Northern Ireland have their own rules, which we have not covered.

The four terms in plain English

Administration. GOV.UK describes it as a formal process for a company that is in debt and cannot pay what it owes. An insolvency practitioner takes control of the business. GOV.UK says the company is protected from legal action by creditors during administration, and nobody can apply to wind it up. The administrator writes to creditors and Companies House, and publishes a notice in The Gazette. Companies House says the aim is to rescue the company, get a better return for creditors than liquidation, or, failing that, distribute assets to creditors. The administrator has to send proposals to creditors within eight weeks.

Creditors' voluntary liquidation (CVL). GOV.UK says directors can propose this if the company cannot pay its debts and enough shareholders agree. An authorised insolvency practitioner is appointed as liquidator, who collects money owed to the company, sells assets and pays creditors. Creditors can propose a different liquidator, and GOV.UK says the creditors' choice typically overrides the shareholders'.

Compulsory liquidation. This happens when a court orders a company to be wound up, usually after a petition. An official receiver takes charge first, and the case may pass to an insolvency practitioner. Our guide to winding-up petitions covers what comes before the order.

Company voluntary arrangement (CVA). A CVA lets an insolvent company pay creditors over a fixed period while it keeps trading. GOV.UK says it is approved if 75% (by debt value) of the creditors who vote agree, and an insolvency practitioner runs it. If the company misses the agreed payments, any creditor can apply to wind it up.

You can often tell which one applies from the register and The Gazette. See how to check if a company is in trouble.

What an unsecured trade creditor can expect

Most suppliers are unsecured creditors. GOV.UK's guidance on compulsory liquidation is blunt: unsecured creditors are paid only after other claims, and if the company has no assets you will not get your money back. It lists the order as follows:

1. The costs of the insolvency process.
2. Preferential debts, such as certain wages and pension contributions.
3. Floating charge holders (companies only).
4. Unsecured creditors.
5. Interest on debts.
6. Shareholders.

GOV.UK also says HMRC became a "secondary preferential" creditor for insolvencies starting after 1 December 2020, for tax the business held on behalf of others, such as VAT and PAYE. Those claims are paid ahead of ordinary suppliers.

If there is not enough to pay everyone, creditors receive a dividend in proportion to their claims. Full repayment is unlikely. Any of these processes can end with pence in the pound, or nothing.

Claiming your debt

To share in any payout you must claim. GOV.UK says that if you are owed more than £1,000 you should complete a Proof of Debt form. If you are owed £1,000 or less, you give the person handling the case your contact details and the amount owed. Registering means you are kept informed and can vote at creditors' meetings. It does not guarantee payment.

If the insolvency practitioner does not contact you, GOV.UK says you can start the process yourself. It also warns that if you have not submitted a proof before a dividend is declared, you may lose your right to share. Find who is handling the case on the company's page at Companies House.

Gather your invoices, contract or terms, delivery notes and a statement of account before you file.

Retention of title

Some suppliers of goods have a retention of title clause in their terms. The Insolvency Service's technical guidance for official receivers describes this as a clause under which the supplier keeps ownership of the goods until they are paid for. That guidance says the supplier must show, among other things, that the wording covers the goods in question, that the clause was properly part of the contract, and that the goods can be identified as theirs. The official receiver will want evidence, such as invoices, delivery notes and the contract terms. It is guidance for official receivers, so how it plays out in an administration or CVL may differ. Ask an adviser promptly if you think you have a claim.

Stopping supply and taking payments

We could not find a primary source that sets a general rule on whether you must keep supplying a customer that has entered insolvency, so we have not stated one. What we can say is practical and is inference rather than law:

• Check your own contract and terms first.
• Do not sue or take enforcement steps against a company in administration. GOV.UK says it is protected from creditor action.
• Treat any new supply on credit as a new risk. Payment upfront is the usual answer.
• Take care with payments received after a petition. See the petition guide linked above.

VAT bad debt relief

If you have accounted for VAT on an invoice that is never paid, you may be able to get that VAT back. GOV.UK's VAT Notice 700/18 sets out the conditions, which include:

• You have already accounted for the VAT and paid it to HMRC.
• You have written the debt off in your VAT accounts and moved it to a separate bad debt account.
• The debt has been unpaid for six months after the later of the payment due date and the date of supply.
• You claim within four years and six months of that later date, in box 4 of your VAT return.

You must keep copies of the VAT invoices and the bad debt account. If the customer later pays, you repay the VAT element through box 1 of a later return. We did not find a shorter waiting period for insolvent customers in the guidance we read, so check with your accountant.

Quick checklist

1. Confirm the type of process and the date, on the register and in The Gazette.
2. Stop new credit and pause enforcement.
3. Find the office holder's contact details.
4. Send your proof of debt or details with supporting documents.
5. Check your terms for retention of title and take advice if it applies.
6. Diarise the VAT bad debt relief date.
7. Review your other customers' exposure.

Spotting it sooner

Try our free Company check on a customer you are worried about. FilingPing watches the Companies House register, so it can alert you to status changes such as liquidation or administration, and you can watch five companies for free. It does not watch The Gazette.

This guide is general information, not legal or financial advice.

Sources

• Put your company into administration (GOV.UK)
• What does going into administration mean? (Companies House blog)
• Guide to liquidation (winding up) for directors (GOV.UK)
• Liquidation and insolvency (GOV.UK)
• Company Voluntary Arrangements (GOV.UK)
• Claim money back from a bankrupt person or company in compulsory liquidation (GOV.UK)
• Register as a creditor in a bankruptcy or liquidation (GOV.UK)
• HMRC as a preferential creditor (GOV.UK)
• Technical guidance for Official Receivers - 13. Retention of title (GOV.UK)
• Relief from VAT on bad debts, VAT Notice 700/18 (GOV.UK)

Updated 30 September 2026 · All guides