Insolvency order of priority Flashcards
What is the statutory order of priority?
- Liquidator’s fees and expenses of preserving and realising assets subject to fixed charges.
- Amount due to fixed charge creditor out of the proceeds of selling assets subject to the fixed charge.
- Liquidator’s other remuneration, costs and expenses.
- Preferential creditors (the first tier and then the secondary tier).
- Creation of the prescribed part fund (if available) for unsecured creditors.
- Amount due to creditors with floating charges.
- Unsecured/trade creditors (including payment of the prescribed part).
- Interest owed to unsecured creditors.
- Shareholders.
What happens if a fixed charge creditor is unable to fully realise their debt?
They may recover the balance lower down the order of priority if they have a floating charge or as an unsecured debt
This indicates the potential recovery options for creditors in liquidation.
Who are considered preferential creditors?
First tier and secondary tier creditors
What is included in Tier 1 of preferential creditors?
- Employee claims for unpaid remuneration (up to £800 per employee)
- Occupational pension scheme contribution
These are the highest priority claims during liquidation.
What constitutes Tier 2 of preferential creditors?
- Crown Debts – PAYE and NI deductions
- VAT received that has been made
These debts are also prioritized but come after Tier 1 claims.
What is the prescribed part fund for unsecured creditors?
50% of the first £10,000 and 20% thereafter, up to a maximum of £600,000 for floating charges created before 6 April 2020 and £800,000 for those created on or after that date
This fund is specifically set aside for unsecured creditors.
Do unsecured creditors get the PPF?
Yes.
What is a QFC?
It is a QFC granted on or after the Relevant Date (15 September 2003)
What can affect the statutory order of distribution in liquidation?
Priority or subordination agreements between creditors
These agreements can change the ranking of creditors’ claims.
