It arrives as a PDF from a firm you have never heard of. Notice of appointment of administrators. There is a portal to register a claim, a reference number, and a line about how creditors will be updated in due course. Somewhere in the attachments is a statement of affairs showing an estimated deficiency in the millions, and your name a long way down a list.
By that point the outcome is largely fixed. Nothing you do in the following fortnight will materially change what you recover, because your position in the queue was set by decisions taken long before — how much credit you extended, what your terms said, whether anyone was watching the concentration risk. What the fortnight after the notice is genuinely for is limiting the second-order damage: the VAT, the tax, and the work you are about to keep doing for a company that will never pay for it.
Where you actually sit in the queue
The order of priority in a UK insolvency is fixed by statute, and it is worth knowing exactly, because most owners assume they are further up it than they are.
First, creditors holding a fixed charge over specific assets — typically a bank with security over property. Then the costs and expenses of the administration itself, including the insolvency practitioner's fees. Then preferential creditors: employees, for unpaid wages up to a statutory limit and accrued holiday pay. Then secondary preferential creditors, which since 2020 includes HMRC for the taxes a company collects on behalf of others — VAT, PAYE and employee National Insurance.
Then the prescribed part, which is carved out for unsecured creditors. Then floating charge holders. Then ordinary unsecured creditors — trade suppliers, subcontractors, anyone who did work on credit. Then, in the vanishingly rare event that anything is left, shareholders.
If you are a supplier, you are in that second-to-last group, sharing whatever remains with every other supplier, and the phrase in the practitioner's first report — a dividend to unsecured creditors cannot be estimated at this stage — usually means what you suspect it means.
The prescribed part, and what pence in the pound looks like
The one piece of statutory protection unsecured creditors have is the prescribed part: a slice of the proceeds from assets subject to a floating charge, ring-fenced for unsecured creditors rather than going to the floating charge holder. It is calculated as 50% of the first £10,000 of floating charge realisations, then 20% of anything above that, subject to an overall cap of £800,000, which has stood since 6 April 2020.
Eight hundred thousand pounds sounds substantial until you divide it. Spread across the unsecured creditor list of a failed business of any size, the prescribed part typically produces a dividend measured in single-digit pence in the pound, paid twelve to twenty-four months later.
Illustrative arithmetic on a single unpaid account. Say you are owed £14,200 including VAT — £11,833 net plus £2,367 of VAT you have already declared and paid over to HMRC. A dividend of 3p in the pound on that claim is £426.
Which is why the reliefs matter more than the dividend. VAT bad debt relief lets you reclaim that £2,367 once the debt is six months past its due date and has been written off in your VAT bad debt account, and you have four years and six months from the later of the due date and the supply date to claim it. The write-off itself is deductible for corporation tax, so at the 25% main rate the remaining £11,407 loss attracts around £2,852 of tax relief. Net cash cost of the failure, after the dividend and both reliefs: roughly £8,555 rather than the £14,200 on the invoice.
The dividend from an administration is rarely worth chasing. The VAT and the corporation tax relief on the write-off are worth several times the dividend, and both need doing properly.
The clause that outranks all of this
There is one way for a supplier to jump the queue entirely, and it only works if it was put in place before anything went wrong. A retention of title clause says that legal ownership of goods you supply stays with you until they have been paid for in full. Goods that are not the insolvent company's property are not available to its creditors, and an administrator has to release them.
Three things determine whether it actually works. The clause has to be properly incorporated into the contract — on the terms the customer accepted before the order, not printed on the back of the invoice that followed it. The goods have to be identifiable as yours and still in their supplied state, because once your timber is part of somebody's kitchen or your ingredients are in a product, the claim usually fails. And an all monies clause, retaining title until everything on the account is paid rather than just that consignment, is considerably stronger than a simple version.
It is not available for services. If what you sell is your time, retention of title is not a route open to you, and stage payments are the substitute — which is why how you write a quote is a credit control decision as much as a pricing one.
The first fortnight
Stop working immediately. This sounds obvious and is routinely ignored, because there is usually a half-finished job and someone still answering emails at the customer's end saying the administrators are expected to trade the business on. Work performed after the appointment date is a new debt, and unless the administrator has expressly agreed to pay for it as an expense of the administration — in writing, from the administrator, not from your usual contact — you are volunteering.
Submit the proof of debt through the portal with the invoices attached, and keep it proportionate. Then do the two reliefs: diarise the VAT bad debt relief claim for six months after the due date, and make sure the write-off lands in the right accounting period for the corporation tax deduction.
Check whether you hold any security you had forgotten about. A parent company guarantee, a director's personal guarantee on the account, credit insurance, or a payment bond on a construction contract all change the picture entirely. On construction work, check whether the contract allows suspension for non-payment and whether any retention is held.
And look at your own numbers honestly. If this receivable was funding your own payables, you have a cash-flow event now, not in twelve months, and it is better to have that conversation with your suppliers and your bank early.
The exposure you could have controlled
The uncomfortable part of a bad debt like this is that almost all of the loss was avoidable at the point the credit was granted rather than the point it went bad.
Set a credit limit for every account and enforce it. Not a vague sense of how much is too much — an actual number, checked before the next order goes out. Concentration is the specific killer: any single customer representing more than about a fifth of your sales ledger is a business risk rather than a commercial success, and the bigger and better-known the customer, the more comfortable owners are about letting it happen.
Watch the signals, because they are almost always there. Payments slipping from 30 days to 45 to 60. A change of finance contact. Requests to extend terms. Invoices disputed for the first time after two years of clean trading. Small round-sum payments on account instead of settling invoices in full. None of them prove anything individually and all of them are worth acting on collectively.
Then use the tools that shift risk before the fact rather than after it. Deposits and stage payments on anything substantial. Retention of title in your terms if you supply goods. Credit insurance if a single customer is large enough that its failure would hurt. A monitoring alert on your largest accounts' filing history — a late set of accounts or a change of auditor is public information that arrives before the administration notice does. And chase early and consistently, because chasing late invoices without losing the client is the discipline that keeps your exposure to any single failure inside what you can absorb.
The customer that fails is rarely the one you worried about. It is the one everybody assumed was safe.
Common questions
Will I get paid if a customer goes into administration?
Usually only a small fraction, and not quickly. Trade suppliers rank as ordinary unsecured creditors, which sits below fixed charge holders, the costs of the administration, preferential creditors such as employees, secondary preferential creditors including HMRC for VAT and PAYE, and the prescribed part. Dividends to unsecured creditors are commonly single-digit pence in the pound and are typically paid twelve to twenty-four months after the appointment. That is why the practical priority is not the dividend but the reliefs: reclaiming the VAT through bad debt relief and taking the corporation tax deduction on the write-off usually recovers several times what the administration pays out.
Can I take back goods I supplied but was not paid for?
Only if you have a retention of title clause that was properly incorporated into the contract before the order — on accepted terms, not printed on the invoice sent afterwards. The clause keeps legal ownership with you until payment, so the goods are not available to the insolvent company's creditors and the administrator must release them. Two limits matter in practice: the goods must be identifiable as yours and still in the state you supplied them, so materials already built into something are generally lost, and an all monies version that retains title until the whole account is settled is far stronger than one covering a single consignment. Retention of title is not available on services.
Can I reclaim the VAT on an invoice a customer never paid?
Yes, through VAT bad debt relief, and it is the largest single recovery available on most bad debts. Three conditions apply: the debt must be at least six months past its due date, it must have been written off in your accounts and recorded in a VAT bad debt account, and the claim must be made within four years and six months of the later of the payment due date and the date of supply. You reclaim the VAT as input tax in box 4 of your VAT return. If the customer later pays some or all of the debt, you have to repay the corresponding proportion of the relief.
What is the prescribed part in an insolvency?
It is a slice of floating charge realisations that is ring-fenced by statute for unsecured creditors instead of going to the floating charge holder, and it is the only reason most trade suppliers receive anything at all. It is calculated as 50% of the first £10,000 realised from floating charge assets, then 20% of the balance above that, subject to an overall cap of £800,000 that has applied since 6 April 2020. It only applies to floating charges created on or after 15 September 2003. Because it is shared across the whole unsecured creditor list, the resulting dividend per creditor is usually very small.
