If you have gone down the route of issuing a winding-up petition against a company or suddenly found that you are a creditor of a company in liquidation whether voluntary or compulsory, the liquidator will ask you to provide proof of the debt owed to you.
This is done by way of a proof of debt form which is sent to all creditors with the notice of liquidation. The liquidator will then approve or reject your claim, and will rank it in the liquidation.
The general statutory order for the liquidator to make payment is:
Fixed charge These rank top in the priority list even though they are not afforded any special protection under the Insolvency Act 1986. This is because the asset is secured.
Expenses of winding up This may include some of your expenses of issuing a winding-up petition, ie the official receiver’s deposit and court fee.
Preferential debts These include employee claims and contributions to occupational pension schemes. As a result of the Enterprise Act 2002, PAYE, VAT and NIC are no longer included as preferential debts but are now ranked as unsecured creditors.
Floating charges Creditors who have secured their debt by way of a floating charge will be affected here. They will rank below preferential creditors, even if the floating charge has crystallized.
Ordinary unsecured creditors These are the ordinary debts of the company. If there are insufficient funds to pay them all then each creditor will rank equally and will be paid in proportion to the sums owed to them.
Surplus If there is any surplus, it will go to the members once the company has paid off all the above in full.
Creditors often leave it too late before taking action to wind up a company. Some may even have decided to issue proceedings first. Unfortunately, judgments alone provide no better protection in terms of priority over other unsecured creditors. It is therefore essential to consider whether insolvency proceedings would be more appropriate than issuing a claim in the courts (provided that the debt is not in dispute), particularly if there is a risk that the company will be wound up prior to judgment being obtained and/or enforcement of that judgment.
Charlotte Mitchell studied law at Exeter University before being called to the Bar in 2004. After a period working for a London investment bank, she chose to qualify as a solicitor. She handles a broad range of contract, commercial and property disputes as well as general advocacy work.
charlotte.mitchell@willans.co.uk
Disclaimer: All legal information is correct at the time of publication but please be aware that laws may change over time. This article contains general legal information but should not be relied upon as legal advice. Please seek professional legal advice about your specific situation - contact us; we’d be delighted to help.
