The email from the insolvency practitioner lands at 4.40pm on a Friday. Your biggest customer has gone into administration overnight. The £40,000 invoice you raised three weeks ago is now a creditor claim, and the practitioner wants your delivery notes by Wednesday.
Most suppliers in this position assume the right move is to file a proof of debt and wait. That assumption costs them money. The first fourteen days after a customer’s appointment is the only window in which retention of title clauses, set-off rights, and continuing-supply decisions can still alter what you recover.
After that the file is set and the dividend is whatever is left in the unsecured pot. We have watched this clock run out on dozens of suppliers who waited for the IP to tell them what to do.
This guide walks the supplier-side actions, the order they need to happen in, and where you sit in the distribution waterfall once the dust has settled. The rules sit in the Insolvency Act 1986, the Sale of Goods Act 1979, and the Insolvency (England and Wales) Rules 2016.
Quick Answer: First 14 Days After a Customer Goes Insolvent
Confirm the formal status on Companies House and the Gazette. Pull every open invoice and check whether the supply contract carries a retention of title clause. Stop further deliveries until you have a written instruction from the appointed administrator or liquidator.
Identify any sums you owe the customer that can be set off against the debt. Submit a clean proof of debt with delivery notes attached. The clock matters. Stock that is identifiable on Day 3 may be processed, sold, or moved by Day 21. ROT claims that succeed are the ones made before that happens.
What You Can Still Recover (and What You Probably Cannot)
You can recover identifiable stock under a valid retention of title clause. You can net off mutual debts under rule 14.25 of the Insolvency (England and Wales) Rules 2016. You can claim a dividend in the unsecured estate, which for ordinary trade creditors typically lands between zero and twelve pence in the pound.
You probably cannot recover the full invoice value through the proof of debt alone. You cannot sue the company once an administration moratorium or winding-up order is in place. You cannot pull a director personally unless you hold a personal guarantee or the practitioner brings a misfeasance claim that flows recoveries back into the unsecured pool.
Main Supplier Risk in the First Two Weeks
The biggest risk is supplying further goods or services without a new credit decision. Pre-appointment debt sits in the unsecured estate. Goods delivered after appointment, on the administrator’s request and with a written commitment to pay, rank as expenses of the administration and are paid ahead of unsecured creditors.
Suppliers who keep delivering on the old account terms without that letter are funding the estate at their own cost. In our caseload, we have seen this turn a £40,000 historic claim into a £55,000 claim in three weeks, with the new £15,000 sitting in the same unsecured queue as the original debt.
What to Do Today About Customer Insolvency
Open a folder. Save the IP’s notice, the customer’s last three statements, every unpaid invoice with its delivery note, and your standard terms of business.
If the contract carries an ROT clause, flag the relevant invoices in a separate list and email the IP to register your interest in identifiable stock. Pause the credit account in your billing system so no one in your team ships another pallet by reflex.
How to Tell If Your Customer Is Actually Insolvent
Companies House Filings That Confirm It
The filing history on the Companies House register is the first place we look. An AM01 confirms an administrator appointment. LIQ01 or LIQ02 confirms a creditors’ voluntary or members’ voluntary liquidation. A 2.17B is the administrator’s notice of intended distribution. A DS01 is a strike-off application, which is not insolvency but often precedes a creditor objection.
If the register is quiet and no notice has been gazetted, the customer may simply be a slow payer rather than insolvent. The remedy there is different: a statutory demand above the £750 threshold, then a winding-up petition with a £343 court fee and a £2,600 Official Receiver deposit. That route only fits when you are confident the customer can pay and is choosing not to.
Letters from the Insolvency Practitioner
The first letter you receive will set out the procedure (administration, CVL, CVA, or compulsory liquidation), the appointment date, the IP’s name and IP number, and the deadline for the proof of debt.
Read it carefully. The deadline drives the dividend cut-off, and a proof submitted after that date ranks behind any distribution already declared.
If the letter is silent on retention of title or set-off, that is not because they do not apply. It is because the IP has no obligation to flag your private contractual rights. The onus is on you to assert them in writing, with the contract and delivery evidence attached.
Difference Between Administration, CVL, CVA and Pre-Pack
The procedure shapes what you can recover and how fast. Administration under Schedule B1 of the Insolvency Act 1986 imposes a moratorium on creditor action and aims for rescue or a better outcome than liquidation.
A creditors’ voluntary liquidation (CVL) is the directors and shareholders winding the company up because it cannot pay its debts, with creditors voting on the choice of liquidator.
A Company Voluntary Arrangement (CVA) is a binding deal with creditors to repay an agreed percentage over time, often three to five years. A pre-pack administration is a sale of the business and assets agreed before appointment and completed within hours of it, usually to a connected party.
For a fuller view of how the IP’s own claw-back work runs in the background, see our guide on antecedent transactions.
The 14-Day Recovery Window
Audit Outstanding Invoices for Retention of Title Clauses
Pull your standard terms of business and the signed credit application. A retention of title clause under section 19 of the Sale of Goods Act 1979 keeps title in the goods with you until payment is received in full.
If the clause is in your contract, the goods are still identifiable in the customer’s warehouse, and the stock has not been mixed, processed or resold, you can reclaim it.
Make the claim in writing to the IP within days of appointment, and offer to attend site with a delivery manifest. ROT recoveries succeed when suppliers move fast and arrive with paperwork.
They fail when stock has already gone through a pre-pack sale or been worked into a mixed product the courts will not unpick. A proceeds clause can sometimes carry the claim through resold stock, but only if the contract is drafted for it.
Identify Set-Off Rights Against Any Money You Owe Them
Set-off under rule 14.25 of the Insolvency (England and Wales) Rules 2016 is automatic where there are mutual debts between you and the customer at the date of insolvency. Both balances are netted and you prove only for the difference. This is not optional and the IP cannot decline to apply it.
The trap is paying the gross balance after appointment because your finance team has not been told. If you owe the customer £8,000 and they owe you £40,000, the proof of debt is for £32,000 net.
Pay the £8,000 to the IP and you have just turned a partial recovery into a total loss on that slice. Document the set-off on the proof and keep the working out.
Decide Whether to Continue Supplying Under Administration
The Corporate Insolvency and Governance Act 2020 inserted section 233B into the Insolvency Act 1986. Suppliers of goods and services to a company in a relevant insolvency procedure cannot terminate the contract or refuse further supply on the basis of insolvency alone.
There are exceptions for hardship, but the default position is that ipso facto clauses are unenforceable.
That does not mean you have to deliver on the old account terms. You can require new credit terms, payment in advance, or written confirmation from the administrator that supply is being made on administration-expense priority.
Get that confirmation in writing before the next pallet leaves your yard. Without it, the new debt joins the old one in the unsecured queue.
What Happens to Your Outstanding Invoices
Where You Sit in the Distribution Waterfall
The order of payment is set by Schedule 6 of the Insolvency Act 1986 and section 175. Secured creditors with a fixed charge come first from the asset they hold. Then the expenses of the insolvency.
Then ordinary preferential creditors: employees up to a statutory cap of £800 in arrears of wages, holiday pay, and occupational pension contributions. Since 1 December 2020, under the Finance Act 2020, HMRC sits as a secondary preferential creditor for VAT, PAYE, employee NIC, and CIS deductions, with no cap.
After preferential creditors, the prescribed part under section 176A carves out a slice of floating charge realisations for unsecured creditors, capped at £800,000 on charges created on or after 6 April 2020. Then floating charge holders. Then you, alongside other unsecured trade creditors.
A standard CVL produces a first distribution six to eighteen months after appointment, sometimes later if there is litigation against directors or trading subsidiaries to sell. Compulsory liquidations run longer because the Official Receiver starts cold.
Administrations that exit into a CVL add a procedural step but do not change the underlying timeline by much. We will not pretend dividends are predictable.
What drives the figure is whether the IP finds recoverable assets beyond the secured lender’s charge: overdrawn director loan accounts, unlawful dividends under section 830 Companies Act 2006, preferences under section 239, transactions at undervalue under section 238, or misfeasance under section 212.
If those claims succeed, the proceeds flow into the unsecured estate and lift the dividend. If the company is empty and the bank holds the only realisable asset, the unsecured pool sees nothing.
When the Liquidator May Pursue Goods From You
This is the supplier risk most miss. If you were paid by the customer in the six months before insolvency while other creditors went unpaid, the IP can review whether the payment counts as a preference under section 239 of the Insolvency Act 1986.
For unconnected suppliers the bar is high, set by Re M.C. Bacon Ltd: the liquidator must show the company was “influenced by a desire to prefer” you. Ordinary trade payments rarely meet that test.
The exposure rises sharply if you are a connected party (a sister company, a director’s other business, a relative’s company). The lookback extends to two years and the desire to prefer is presumed. If that is your position, take advice before responding to the IP’s first information request.
Mistakes Suppliers Make When Their Customer Goes Insolvent
Continuing to Supply Without a New Credit Decision
The most expensive mistake we see is the supplier who keeps shipping because no one paused the account. The customer is in administration, the administrator wants to keep trading the business through to a sale, and your goods become part of that strategy.
The administrator is not your debtor and the old account terms do not bind the estate. Stop the account. Demand new terms in writing, signed by the administrator on administration-expense priority.
If the administrator will not give that, our answer to clients is no further supply. This is a credit decision, not a customer-service one.
Failing to Audit ROT Clauses Before Stock Is Liquidated
Suppliers often assume they have ROT because their terms include the words. The clause may be there, but the goods may already be unidentifiable, mixed into a manufactured product, or sold through under a pre-pack the day before you called.
The window to assert ROT closes faster than the deadline for the proof of debt. Pull the contract. Pull the delivery notes.
Phone the IP within 48 hours of appointment with a manifest and an offer to attend site. The suppliers we see recover identifiable stock are the ones who treat the first three working days as the live phase, not the first three weeks.
Settling Set-Off Without Documenting It
Mutual debts net automatically, but the IP will only apply set-off on the figures you put in front of them. If your proof of debt claims the gross amount and your purchase ledger separately shows you owed the customer money, the IP may demand the gross balance and admit the gross proof, leaving you to argue it later.
By then the dividend may already be calculated. Show the working. State on the proof of debt: “Gross debt £40,000, less set-off of £8,000 under rule 14.25 IR 2016, net claim £32,000.”
Attach both ledgers. The IP cannot ignore properly documented set-off. They can quietly skip undocumented set-off and answer the query later.
Related Customer Insolvency Guides
If you want the recovery-mechanics view rather than the immediate-action view, our companion page on what to do when an insolvent company owes you money covers proof of debt drafting, dividend timing, and director-liability routes in more depth.
Frequently Asked Questions About Customer Insolvency
How do I prove my retention of title claim against the administrator?
You need a written ROT clause in the contract that was in force at the time of supply, identifiable goods that remain in the customer’s possession, and evidence the goods are unmixed and unprocessed.
Send the clause, the relevant invoices, and the signed delivery notes to the appointed IP within days of appointment, and offer to attend site to identify the stock. Recoveries fail most often because the goods have been resold, mixed, or worked into a product the courts will not unpick.
Can I refuse to supply a customer once they enter administration?
Section 233B of the Insolvency Act 1986, inserted by the Corporate Insolvency and Governance Act 2020, prevents a supplier of goods or services from terminating the contract or refusing further supply on the ground of insolvency alone. There is a hardship exception.
You can, however, require new credit terms or payment on administration-expense priority, confirmed in writing by the administrator, before any further supply. Without that confirmation, new debt joins the unsecured queue.
What dividend should I expect as an unsecured trade creditor?
Typical dividends for ordinary unsecured trade creditors in a UK liquidation sit between zero and twelve pence in the pound, paid six to eighteen months after appointment.
The figure depends on whether the IP recovers anything beyond the secured lender’s charge: overdrawn director loan accounts, preferences under section 239, transactions at undervalue under section 238, or misfeasance recoveries under section 212. Where the company is empty and the bank holds the only asset, the unsecured pool usually sees nothing.
How do I claim VAT bad debt relief on the unpaid invoice?
Under section 36 of the Value Added Tax Act 1994, you can reclaim the VAT on a bad debt once the debt is at least six months overdue from the date payment was due and you have written it off in your accounts.
The customer’s insolvency is not a precondition for the relief but it usually confirms the write-off is justified. Claim the VAT element on your next return and apply the relief before claiming any dividend in the estate.
Could the liquidator try to claw back payments my customer made me before appointment?
Possibly, under section 239 of the Insolvency Act 1986. The IP can review payments made in the six months before appointment for unconnected creditors, and two years for connected parties.
For unconnected suppliers, Re M.C. Bacon Ltd sets a high bar: the liquidator must show the company was “influenced by a desire to prefer” you, and ordinary trade payments rarely meet that test. Connected-party preferences carry a presumption of desire and are far more likely to be unwound.
Should I attend the creditors’ meeting if my claim is small?
Attendance is voluntary and most decisions in modern UK liquidations now go through deemed-consent or correspondence procedures rather than physical meetings.
Where a meeting is convened, attending lets you vote on the choice of liquidator, ask the directors questions on the record, and join a creditors’ committee that gets earlier sight of the IP’s strategy. For a small unsecured claim, the practical value is mostly information rather than recovery.
What happens to a personal guarantee I hold from a director of the insolvent customer?
A personal guarantee survives the company’s insolvency and gives you a direct claim against the director’s personal assets. You enforce it through County Court proceedings or a creditor’s bankruptcy petition. The PG is only as good as the guarantor’s assets: a Land Registry search and a check of any other directorships will tell you whether enforcement is worth the cost before you instruct.
