Your customer has paid but the liquidator wants the money back – what can you do?

liquidator wants money back

Your customer has paid you but you now find they have gone into liquidation and the liquidators want the money back. Why? What can you do?

Payments made by a company after a Winding Up Petition has been presented are void if a winding up order is made. This is the case even if the petition had not been served or advertised when the payment was made, meaning you or the company would not know about it without making enquiries/searches (see ‘Could you have known about the petition’ below).

Until the last few years, liquidators often did not pursue repayments if the payment had been received in good faith i.e. you hadn’t known about the petition. These days, liquidators are much more likely to go after repayment. So, is there anything you can do?

Is it worth arguing with the liquidator?

Cost effectiveness is an important consideration. If you are going to argue with the liquidators, you need to consider the likely legal costs and the cost of you or your staff being diverted from other profitable activities. When calculating this keep in mind that any repayment comes straight out of your profit. If your charge to your customer and the payment was, say, £650 and your profit margin is 10% then only £65 will be your profit.

However, if you repay the money, it all comes out of your profits and you would need to earn another £6,500 to replace it. So, it may well be worth incurring costs up to a significant part of the payment in trying to resist the liquidators’ demand.

Before paying the money back you should check the following:

Change of position


Would you be entitled to a validation order?

Have you supplied the company on favourable terms?

More generally

Is there anything else that makes it unfair for you to repay the money?

Most of us feel it is unfair to have supplied goods or services and then not get paid, or worse still, have to make a repayment. The law says this unfairness has to be shared equally by all creditors. However, if there is something else, apart from the points dealt with above, perhaps some action or statement, that makes it additionally unfair, it is worth taking advice.

Being pragmatic

Often in the law, it’s not a question of being absolutely right or absolutely wrong but of being able to make a reasonable argument. If you can do this, you may be able to reach a satisfactory compromise rather than having to accept defeat.

Could you have known about the petition?

It is relatively easy to find out about petition once it has been advertised. You can search the London Gazette online for the notice that the petition has been presented and the petition should show up on a credit check. Before a petition is advertised the only way to find out about it is to phone the court. Not something most creditors would think of doing. However, the liquidators may argue that you could/should have known about the petition when you received the payment and would not therefore be entitled to a validation order.

11 February 2019