Corporate Insolvency - Statutory Order of Priority Flashcards
(22 cards)
What is a dividend in the context of insolvency?
Payment made by the liquidator or administrator to a creditor in respect of the amount the creditor is owed
Can contractual arrangements affect the statutory order of priority?
Yes - priority and subordination agreements between creditors may alter their order of entitlement
1st step in applying the statutory order of priority?
Liquidator’s fees and expenses for preserving and realising assets subject to fixed charges are paid first
Who receives payment after liquidator’s fixed charge costs?
fixed charge creditors, from the proceeds of assets secured by fixed charges, net of those costs
What happens if the fixed charge proceeds do not cover the full debt?
The remaining debt may be covered by a floating charge (if available) or will rank as an unsecured debt
What is the 1st payment from floating charge asset realisations?
The liquidator’s other general costs and expenses, including the costs of realising these assets
Can litigation be recovered from floating charge assets?
Only if approved by preferential creditors, floating charge holders, or the court
Who are the 1st tier preferential creditors?
Employees, for up to £800 in unpaid wages from the four months before insolvency, plus accrued holiday pay, and certain pension contributions
Who are the 2nd tier preferential creditors?
HMRC, for unpaid PAYE, employee NI deductions, and VAT owed but not paid to HMRC
What is the payment rule between tiers of preferential creditors?
1st tier preferential debts must be paid in full before 2nd tier preferential debts
What is the purpose of the prescribed part fund?
To reserve part of floating charge realisations for unsecured creditors, ensuring they receive something
How is the prescribed part fund calculated?
- 50% of the 1st £10k of net property
- 20% of the balance
- Capped at £600k (pre-2020 tax year) or £800k (post-2020 tax year)
What is net property for prescribed part purposes?
The realisations from assets subject to floating charges, minus liquidation costs and preferential debts
Can floating charge holders claim from the prescribed part?
No - even if they suffer a shortfall, they cannot claim against the prescribed part
When are floating charge creditors paid?
After payment of liquidation costs, preferential creditors, and deduction of the prescribed part
How is priority determined among multiple floating charge holders?
By contractual priority agreements between charge holders
Who are unsecured creditors?
- Trade creditors with unpaid debts
- Secured creditors to the extent that their security is ineffective or insufficient
How are unsecured creditors paid?
Rateably, according to pari passu rule, meaning all share equally in proportion to their debts
Does the prescribed part form part of the unsecured creditor pool?
Yes. It is added to the total pool available to unsecured creditors
When is interest on unsecured debts paid?
After all unsecured debts are paid, interest accruing since the start of the winding up is paid
When are shareholders paid?
Lastly, and only if all creditor and interest obligations are met in full
Do different classes of shareholders rank equally?
No - will depend on the rights set out in the Articles
