Who gets paid first in liquidation?
Who gets paid first if your company enters an insolvent liquidation is dictated by the payment hierarchy as detailed in the Insolvency Act 1986. Secured creditors are paid first, with the remaining creditors ordered as in the hierarchy. As licensed insolvency practitioners (IPs), we will make all necessary payments to creditors throughout the liquidation of your company.
More on creditor preference in insolvencyWho are your company’s creditors?
Your company’s creditors are the parties to which your company owes money. If your company becomes insolvent, certain repayments will take priority over others and help determine the order in which your creditors will receive any monies.
What order are your creditors paid in insolvency?
In insolvency, your creditors are repaid in the following order:
- Secured creditors with fixed charges
Secured creditors with fixed charges include financial institutions and banks to which you may have secured or guaranteed a business asset in exchange for a loan. The bank could claim that asset to recover the cost of your debt.
There are several assets the company could have guaranteed a fixed charge against, including, but not limited to:- Machines and equipment
- Sales ledgers
- Premises
These charges and the associated assets are registered at Companies House, and they cannot be disposed of without consulting the creditor.
- Preferential creditors
In insolvency, your employees are preferential creditors. They are entitled to payments of wages in arrears, holiday pay and pension contributions up to a certain amount.If there aren’t sufficient funds within the company after secured creditors with fixed charges are paid, employees can claim for payment in lieu of notice, pro-rata holiday pay, and redundancy pay via the Redundancy Payments Service. - Secondary preferential creditors
HMRC are secondary preferential creditors for repayments of VAT, PAYE, student loan repayments, employee National Insurance Contributions and Construction Industry Scheme deductions.
More on preferential creditors - Secured creditors with floating charges
Secured creditors with floating charges are likely to relate to assets such as:- Works in progress
- Stock or raw materials
- Cash
- Unfactored debts
Where fixed charges have physical assets to reclaim, floating charges are more susceptible to change. These assets’ fluidity set secured creditors with floating charges apart from those with fixed charges. Floating charges crystalise if the company enters liquidation, becoming fixed charges.
- Unsecured creditors
Unsecured creditors have no claims over company assets but may be owed payments for other amounts. Because they are further down the repayment hierarchy, any amount received is likely to be smaller than those received by secured and preferential creditors.
These creditors include:- Suppliers
- Contractors
- Customers
- HMRC, for repayments of employer National Insurance Contributions and Corporation Tax
- Shareholders
Company shareholders are the last to be repaid. As they don’t hold any charges over the company, they are classed differently from the other creditors. Shareholders only receive payments after the previously listed creditors if anything remains after costs, all classes of creditors and interest have been paid in full.
How our services can help your company
If your company is experiencing financial difficulties and your creditors are demanding repayment, we can help advise you on how to manage your creditors and the best solutions available to your company. Our licensed and regulated IPs can assess your situation and help you decide the best solution for your company. Our team has years of experience and can offer you free, impartial, confidential advice with no obligation.
- Repay your company debts in a payment plan via a Company Voluntary Arrangement (CVA)
A CVA is a payment plan between a company and its creditors that allows you to restructure your company’s unsecured debts, while continuing to trade, by making affordable monthly payments over a fixed period. We start by assessing your company’s financial position, determining a realistic repayment amount. These terms are then proposed to your creditors and if approved, your company enters the repayment plan. When in place, all interest and charges are dropped and creditors in the arrangement cannot take further legal action. The process lasts for up to 5 years and on successful completion, any remaining unsecured debt in the arrangement is written off.
- Restructure your company through administration
Administration is an insolvency procedure for companies. Entering the procedure, your company will be in a temporary state of protection by a moratorium that halts creditor action, including legal proceedings, giving your company the breathing space to continue trading. We will act as administrator and our primary purpose is to rescue your company as a going concern, attempting to restructure and turn it into a leaner, more profitable organisation. If rescuing the company isn’t a viable option we will also look at the most appropriate exit strategies from administration, whether that be a potential sale of the business, assets, the whole company, or transitioning to an alternative insolvency procedure.
- Close your company down via a Creditors Voluntary Liquidation (CVL)
A CVL is a liquidation procedure for companies that are insolvent. The process will formally close and liquidate your company, ceasing its trading operations, realising any assets, and removing the threat of creditor legal action. If your company has employees, they can claim for redundancy and other statutory entitlements through the government’s Redundancy Payment Service (RPS). The process is final and irreversible. Once completed, your company’s unsecured debt will be written off and the company is dissolved, allowing you, the director, to move on.
- Close your company down and start again via a pre-pack liquidation
A pre-pack liquidation is a type of CVL where the sale of your company’s assets is arranged before liquidation, allowing business operations to continue seamlessly under the purchasing company. The company name may be reused, and employees can transfer under TUPE. Contracts and essential agreements can also be included as part of a sale, ensuring minimal disruption to your business operations. This process eliminates the unsecured debts of your previous company, providing a fresh start free from previous unsecured liabilities.
How to get in touch: The next steps
- Speak with our initial advisers
Make contact with our team, via phone, filling in a form, or online chat. We will assess your circumstances and, if suitable, arrange a free consultation with a consultant to discuss your company’s situation. - Initial assessment
During the consultation, we will advise if an insolvency procedure is the most appropriate route forward or whether alternative solutions better suit your company’s problems. - Formally engage with Wilson Field
If there is an appropriate insolvency solution, we will confirm the necessary steps to start the procedure and will issue you with the relevant documentation for you to formally engage us.
In summary
When your company is insolvent and enters liquidation, creditors will be repaid as listed in the repayment hierarchy as per the Insolvency Act 1986. If your company is insolvent, your secured creditors will be paid first, with the others following as detailed in the repayment hierarchy. Our experienced advisers and licensed and regulated insolvency practitioners can offer you free, confidential advice on what the best course of action would be for your company, and handle all the necessary payments to creditors for the duration.
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