Unsecured creditors do not hold any security against their debts and they generally fall into the largest group of those who are owed payment. They come after preferential creditors (including secondary preferential creditors) in terms of their payment priority in a liquidation.
What are Examples of Unsecured Creditors?
There are many types of unsecured creditors, including:
- Providers of unsecured loans, including payday loans, and credit card companies
- Numerous suppliers such as utility and broadband providers
- Landlords – such as for rent arrears
- HMRC – but only when trying to collect Corporation Tax and business rates
All unsecured creditors rank equally in terms of their prioritisation and if there are sufficient funds remaining, they are paid the same percentage of what is available. There is no recourse for unsecured creditors following a liquidation if they do not receive the return of their debts, or indeed, nothing at all.
Many creditors will already be aware that a business is in liquidation as they will have been chasing for payment and they may receive notice directly from the liquidator.
Can you Register as an Unsecured Creditor?
Some, however, may hear the business has collapsed at a later stage and they can then register as a creditor and beadded to the list. This allows them to be kept informed about the case and to vote on decisions in meetings. If the amount owed is more than £1,000, then they also need to provide a ‘Proof of Debt’ form.
There is no longer a requirement for a liquidator to hold creditors’ meetings automatically, unless 10% of creditors – or 10 individuals – request this. Otherwise, information is provided to creditors via email.
It is common for unsecured creditors to receive little or no recompense because there are often others with large debts ahead of them in the queue – and even more so now that HMRC is a secondary preferential creditor.
All creditors can do is ensure their debt collection procedures are as robust as possible and they resort to other measures before a business is declared insolvent. This can include obtaining a County Court Judgement where bailiffs can be used to seize goods to pay for the debt.