Simplified order of priority between creditors
This order of priority is a simplified version.
- Creditors with fixed charges – entitled to the first call on the proceeds from the sale of those assets charged to them under a fixed charge.
- Preferential creditors – primarily wages (up to £800 per employee) and occupational pensions.
- Creditors with floating charges (which will have crystallised, if not before, upon commencement of the winding up). For floating charges created on or after 15 September 2003, a proportion of the proceeds of the floating charge assets will be set aside for payment to unsecured creditors. This is commonly referred to as the ’prescribed part fund’.
- Unsecured creditors, to the extent not paid off from the prescribed part fund.
- Shareholders (according to the rights attaching to their shares).
Priority among secured creditors
The rules of priority are complex but, in general, if more than one creditor has a fixed charge over the same assets, the first fixed charge created has priority (provided it was properly registered in accordance with s.860 or s.859A CA 2006). Similarly, if more than one creditor has a floating charge over the same assets, the first floating charge created has priority (provided it was properly registered).
However, this order can be varied by agreement between the creditors through a document known as a Deed of Priority, an Intercreditor Agreement or a Subordination Agreement. Such an arrangement has the benefit that creditors can make specific provision for the order in which they will rank and do not need to rely on the complex and sometimes uncertain rules mentioned above.
Priority among unsecured creditors/shareholders
Shareholders and unsecured and preferential creditors rank equally among themselves (subject to any preferential rights attached to certain classes of share).