The Statutory Order of Priorities

Question 1

What is the first payment made from proceeds of selling assets subject to a fixed charge?
A. Liquidator’s costs of preserving and realising the asset
B. Preferential creditors
C. Fixed charge creditor
D. Prescribed part

Answer 1

A. Liquidator’s costs of preserving and realising the asset
Explanation: Before paying the secured creditor, the liquidator deducts any direct costs associated with selling the asset.

Question 2

Who gets paid last in the statutory order of priority?
A. Unsecured creditors
B. Floating charge holders
C. Preferential creditors
D. Shareholders

Answer 2

D. Shareholders
Explanation: Shareholders are at the bottom of the hierarchy and only receive returns if all creditors (including interest) are paid in full.

Question 2

What is the maximum prescribed part fund for floating charges created on or after 6 April 2020?
A. £800,000
B. £400,000
C. £600,000
D. £200,000

Answer 2

A. £800,000
Explanation: The cap for the prescribed part was raised to £800,000 for relevant floating charges created on or after that date.

Question 2

Which of the following is a Tier 2 preferential creditor?
A. HMRC for unpaid VAT
B. A floating charge holder
C. Employee owed unpaid wages up to £800
D. A director

Answer 2

A. HMRC for unpaid VAT
Explanation: Tier 2 preferential creditors include certain Crown debts like VAT and PAYE.

Question 3

A company is being wound up. After deducting £5,000 in sale costs, £195,000 is realised from selling property subject to a fixed charge. What happens next?
A. Trade creditors are paid
B. The full £195,000 is given to the shareholders
C. The balance goes to the fixed charge creditor
D. The prescribed part is created

Answer 3

C. The balance goes to the fixed charge creditor
Explanation: After deducting costs of sale, the remaining proceeds from fixed charge assets are paid to the secured creditor.

Question 4

XYZ Ltd has £500,000 in floating charge assets. £40,000 is spent on general liquidation costs and £0 on preferential debts. What is the maximum possible prescribed part?
A. £800,000
B. £100,000
C. £600,000
D. £200,000

Answer 4

A. £800,000
Explanation: 50% of the first £10,000 and 20% of the rest gives £98,000, which is under the cap of £800,000. In theory, £800,000 is the maximum allowable fund.

Question 5

A company owes £100,000 to employees, £50,000 of which is holiday pay and £50,000 for unpaid wages exceeding £800 per person. How much is Tier 1 preferential?
A. £0
B. £50,000
C. £100,000
D. £50,000 + up to £800 per employee for unpaid wages

Answer 5

D. £50,000 + up to £800 per employee for unpaid wages
Explanation: Holiday pay and up to £800 per employee of unpaid wages fall into Tier 1 preferential debts.

Question 6

A bank holds both a fixed and floating charge. The fixed asset realises £200,000, and the floating asset realises £300,000. After all deductions, the bank is still owed £50,000. What type of creditor is the bank for this shortfall?
A. Preferential
B. Shareholder
C. Floating charge holder
D. Unsecured creditor

Answer 6

D. Unsecured creditor
Explanation: Any shortfall not covered by valid fixed or floating charges ranks as unsecured debt.

Question 7

In liquidation, £150,000 is available after paying fixed charge debts. There are unsecured creditors owed £400,000. How much does each £1 of unsecured debt receive?
A. £0.37
B. £0.60
C. £0.50
D. £0.45

Answer 7

D. £0.45
Explanation: 150,000 ÷ 400,000 = 0.375 or 37.5 pence per pound. Closest correct answer is B.

Question 8

A company has unpaid VAT, unpaid wages of £750 per employee, and has floating charge assets realising £250,000. What is the correct order of payment for these amounts?
A. VAT, then wages, then floating charge
B. Wages, then VAT, then floating charge
C. Floating charge, then VAT, then wages
D. VAT and wages are paid equally before the floating charge

Answer 8

B. Wages, then VAT, then floating charge
Explanation: Tier 1 preferential debts (wages and holiday pay) are paid before Tier 2 debts like VAT.