When a company is liquidated, creditors often want to know the order in which they will be paid. This order, called the creditor’s order of priority, determines the likelihood of receiving payment.

The ranking of creditors is as follows:

  • Fixed charge holders
  • Expenses of the insolvent estate
  • Liquidators’ fees and expenses
  • Preferential creditors (including HMRC)
  • The ‘prescribed part’ *
  • Floating charge holders
  • Unsecured creditors
  • Interest incurred on all unsecured debts post-liquidation
  • Shareholders

Understanding your position in this hierarchy is essential for managing expectations about financial recovery from the liquidation.

Who Gets Paid First When a Company is Liquidated illustration

Who Gets Paid First When a Company is Liquidated?

Each group of creditors must be paid in full before funds can be allocated to the next.

(1) Secured Creditors with a Fixed Charge

A secured creditor with a fixed charge has a specific asset, such as equipment or real estate, as collateral for a loan. These are usually banks or other asset-based lenders.

The ‘fixed charge’ gives the creditor a higher priority in the event of the borrower’s insolvency, as they are entitled to be paid first from the proceeds of the sale of the collateral. 

(2) Preferential creditors

In the UK, certain types of debt are considered preferential. These include:

  1. Wages and salaries: Debts owed to employees for unpaid wages, salaries, and redundancy pay are preferential and must be paid before other creditors (up to a sum of £800 per employee)
  2. Contributions to employee pension schemes: Contributions owed to employee pension schemes are also considered preferential debts.
  3. HMRC: Money owed to HMRC, such as
  • Value Added Tax (VAT)
  • Pay As You Earn (PAYE)
  • employee National Insurance contributions (NICs)
  • Construction Industry Scheme deductions

(3) Secured Creditor with a Floating Charge

A floating charge is a type of security interest covering a class of assets rather than specific ones; this means that the assets covered by the floating charge can change over time as the debtor acquires new or disposes of existing assets. Some common examples of assets that may be subject to a floating charge include the following:

  1. Inventory: This can include raw materials, finished goods, and work-in-progress.
  2. Receivables: These are amounts owed to the debtor by its customers.
  3. Machinery and equipment: This can include factory equipment, office equipment, and other machinery used in the debtor’s business.

(4) Unsecured creditors

An unsecured creditor is a lender with no collateral for their loan; this means that the creditor does not have a specific asset, such as equipment or real estate, as security for their debt. 

Some examples of unsecured creditors include:

  1. Credit card companies: Credit card companies are often unsecured creditors, as they do not have any collateral for their loans.
  2. Suppliers: Suppliers who sell goods or services to a company on credit may also be unsecured creditors if they do not have any collateral for their debt.
  3. Professional service providers: Professional service providers, such as lawyers or accountants, may also be unsecured creditors if they do not have any collateral for their fees.
  4. Landlords: Landlords who rent property to a company may be unsecured creditors if they do not have any collateral for their rental income.

(5) Shareholders

If any funds remain after all debts have been paid, these may be distributed to the company’s shareholders. However, shareholders are typically the last to be paid in liquidation, as the primary purpose of the process is to pay off the company’s debts.

Get Advice about Creditor Priorities in Liquidation

Please call 0800 074 6757 for a no-obligation initial consultation, or complete an enquiry form and one of our company rescue advisers will be in touch.

Determining who gets paid in a company insolvency can be a very complex area, particularly in the case of floating charge and associate creditors.

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FAQs on Who Gets Paid First During Liquidation

Yes, secured creditors with a fixed charge may choose to wait if they believe the sale of collateral at a later date might yield a better return. However, they have the first claim on their collateral’s sale proceeds.

Yes, up to a limit of £800 per employee for wages and salaries, including certain benefits, are treated as preferential and are paid before most other debts.

Yes, HMRC is considered a preferential creditor for certain taxes like VAT and PAYE, meaning they get paid before unsecured creditors but after secured creditors and employees.

Contributions owed to employee pension schemes are preferential debts and are paid after fixed charge creditors but before floating charge creditors and unsecured creditors.

No, shareholders are not considered creditors; they are owners of the company. They only receive payment after all creditors have been paid, which is rare in liquidation scenarios.