The recent administration of Nathan River Resources serves as a timely reminder that even substantial businesses can experience financial distress with little warning. According to public reports, the company entered voluntary administration after a turbulent period that included operational shutdowns, stood-down workers, unpaid creditors and debts reportedly exceeding $300 million. Administrators from BRI Ferrier have been appointed to assess the company’s future and the prospects for creditors.
While much attention naturally focuses on employees and shareholders when a company fails, many of the most significant losses are often suffered by suppliers, contractors and service providers who are left with unpaid invoices.
For businesses across Western Australia, the collapse highlights an important question:
What can you do to protect yourself if one of your customers goes into administration owing you money?
Understanding Your Position as a Creditor
When a company enters administration, unsecured creditors typically find themselves towards the back of the queue for payment. Depending on the circumstances, secured creditors, employee entitlements and administration costs may all take priority before unsecured creditors receive any return. In many administrations, unsecured creditors recover only a fraction of what they are owed, and sometimes nothing at all.
This reality means that businesses should not wait until a customer becomes insolvent before thinking about protection strategies.
- Conduct Credit Checks Before Extending Credit
Many businesses spend considerable time assessing potential employees or suppliers but undertake very little due diligence on customers.
Before offering significant credit terms, consider:
- Obtaining a credit report;
- Conducting ASIC company searches;
- Reviewing publicly available financial information;
- Checking whether there are existing security interests registered against the company; and
- Monitoring payment history closely from the beginning of the relationship.
A customer who consistently pays late may be providing an early warning sign of financial difficulty.
- Use Strong Terms and Conditions
One of the most effective protections available to suppliers is a well-drafted set of trading terms.
Your terms and conditions should ideally include:
- Personal guarantees from directors where appropriate;
- Interest on overdue accounts;
- Recovery of legal and collection costs;
- Rights to suspend further supply; and
- A properly drafted retention of title clause.
Unfortunately, many businesses rely on outdated templates or generic online documents that may not adequately protect them when insolvency occurs.
- Register Security Interests on the PPSR
The Personal Property Securities Register (PPSR) remains one of the most underutilised creditor protection tools available to Australian businesses.
Where goods are supplied on credit and a valid security interest exists, registration on the PPSR can significantly improve a supplier’s position if a customer enters administration or liquidation.
Without registration, a supplier may lose rights that they otherwise believed they had retained under their contract.
The difference between a registered and unregistered security interest can be the difference between recovering valuable assets and joining the pool of unsecured creditors.
- Watch for Warning Signs
Insolvency rarely arrives without warning.
Common indicators include:
- Requests for extended payment terms;
- Broken payment arrangements;
- Frequent changes in management;
- Staff redundancies;
- Significant operational disruptions;
- Difficulty contacting decision-makers; and
- Increasing creditor pressure.
Public reporting prior to Nathan River Resources entering administration referred to operational shutdowns, worker stand-downs and claims of unpaid obligations. These types of developments can often signal deeper financial difficulties.
When warning signs emerge, businesses should consider reducing credit exposure, requiring upfront payment or obtaining additional security.
- Act Quickly When Payments Stop
Many creditors wait too long before taking action.
The longer a debt remains unpaid, the greater the risk that the customer’s financial position will deteriorate further.
Early intervention may involve:
- Formal letters of demand;
- Negotiating repayment arrangements;
- Reviewing security positions;
- Commencing recovery proceedings; or
- Obtaining insolvency advice.
Prompt action can often improve recovery prospects and reduce overall losses.
What Should You Do If a Customer Enters Administration?
If one of your customers enters administration:
- Immediately identify the amount owed.
- Gather contracts, invoices and supporting documentation.
- Review whether any security interests have been registered.
- Lodge any required proof of debt with the administrator.
- Obtain legal advice regarding your rights and recovery options.
Every administration is different, and the rights of creditors can vary significantly depending on the contractual arrangements and security interests in place.
The Takeaway
The administration of Nathan River Resources is a reminder that business failure can occur even in large and established enterprises. While no strategy can eliminate credit risk entirely, businesses that conduct proper due diligence, implement robust trading terms, register security interests and respond quickly to warning signs place themselves in a far stronger position when financial difficulties arise.
The best time to protect your business is before a customer becomes insolvent, not after an administrator has been appointed.
If you would like assistance reviewing your trading terms, PPSR registrations or debt recovery procedures, the commercial litigation team at Lynn & Brown Lawyers can help ensure your business is better protected against the risks of customer insolvency.
About the Author: This article has been authored by Steven Brown, Steven Brown’s legal career covers working with multinational corporations and Australian listed companies to family-owned businesses. This range of experience has equipped Steven with the unique ability to offer tailored legal services that make a significant difference to businesses of all sizes.
Steven enjoys working with entrepreneurs and family enterprises to both protect them and allow them to forward develop their businesses as well as ensure it can flow to the future generations.
