Chapter 27: Rights of Creditors

Question 1

Rights of creditors

Answer 1

If company fails to fulfil payment oblications, creditors are able to recover claims against all company’s assets and sometimes the private assets of business owners

Creditors are afforded legal remedies that enable them to sell of debtor’s assets and use proceeds (foreclosure sale) after court orders bancruptcy

Question 2

Preferential creditors

Answer 2

Have priority over ordinary and unsecured creditors through preferential claim. They do not need to get a court order first and can use foreclosure to settle their claim only, no need to share with other creditors

Question 3

Ordinary creditors

Answer 3

• equal rights to foreclosure proceeds
• divide proceeds in proportion to size of each creditor claim
• Proceeds often do not cover claims 100%, so it is a percentage

Question 4

subordinated creditors

Answer 4

Only receive proceeds after all the claims of the other creditors have been paid