Payment Priority During a Liquidation Procedure
In a liquidation process, all creditors have to provide a proof of debt form to the liquidator who then places them in order of priority. Once the office holder’s fee and liquidation expenses are met, the highest priority category to get payments first will be the secured creditors holding a fixed charge.
Secured creditors with a fixed charge: This category comprises of banks and other important monetary institutions that have lent the insolvent company or business money with assets as security. If any business borrows a sum for the purchase of property, the institution lending charges a fixed charge as security. This is of use in cases of liquidation or default during which the money is recovered.
Preferential creditors: These are employees and staff members that get statutory payments such as wages, pension contributions, pending arrears and redundancy wages etc. The employees are paid from the assets that are sold, after fixed charge creditors.
Secured creditors with a floating charge: Those secured creditors that possess a floating charge are entitled to claim assets like work-in-progress or stock. In the event of a business-facing liquidation, the floating charges are converted into fixed charges. Floating creditors receive their dues after preferential creditors are paid. The amount is termed as prescribed part. This is for assets with floating charges after 15 Sep 2003.
Unsecured creditors: These comprise contractors, suppliers and customers, particular employee claims and the HMRC. If the unsecured creditors get equal dividend with more money available interest on the debt is also paid.
Connected/associate unsecured creditors: Those unsecured creditors linked to the business qualify for dividends during liquidation.