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Understanding the Order of Payment in Company Liquidation

When a company goes into liquidation, it’s crucial to understand who are paid first in liquidation of a company.

The liquidation process involves selling off assets to repay creditors, but not all creditors are treated equally.

The order of payment, often referred to as the “priority of claims,” dictates who gets paid first and who gets the money last in liquidation of a company.

Who are paid first in liquidation of a company

The Order of Payment: Who Gets Paid First?

Secured Creditors

In the hierarchy of creditors, secured creditors are at the top.

These creditors have the first claim on the company’s assets. Secured creditors are those whose loans are backed by specific assets of the company, such as property or equipment.

In a liquidation, secured creditors are paid first from the proceeds of selling the secured assets.

Preferential Creditors

Next in line are preferential creditors.

These typically include employees who are owed wages, holiday pay, and pension contributions.

Preferential creditors are given priority over unsecured creditors but come after secured creditors.

Unsecured Creditors

Unsecured creditors are those who do not have specific assets backing their claims.

This category includes suppliers, customers, and contractors. While they do have a right to payment, they are further down the list.

The amount they receive often depends on the remaining funds after the higher-priority creditors have been paid.

Shareholders

Shareholders are typically at the bottom of the payment hierarchy.

They are considered residual claimants, meaning they get paid only if there are any remaining funds after all other creditors have been satisfied.

This is why shareholders are often the last to be paid after the liquidation of a company.

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Who Gets the Money Last in Liquidation of a Company?

In a company liquidation, who gets the money last in liquidation of a company is often the shareholders.

After all secured, preferential, and unsecured creditors have been paid, any remaining assets are distributed to shareholders.

Given that shareholders take on more risk by investing in the company, they stand to lose the most if the company fails and enters liquidation.

Company Liquidation: Who Gets Paid First and Last

Example Scenario

Consider a company that has gone into liquidation with the following financial obligations:

  1. Secured loans: £200,000
  2. Employee wages and pensions: £50,000
  3. Trade creditors: £100,000
  4. Remaining funds for distribution: £20,000

In this scenario, the secured creditors would be paid first from the proceeds of the sale of secured assets.

Next, preferential creditors (employees) would be paid. Any remaining funds would then go to unsecured creditors.

If there are still funds left after all these payments, the shareholders would receive the residual amount, if any.

Conclusion

Understanding who are paid first in liquidation of a company is essential for creditors and shareholders alike.

Secured creditors and preferential creditors are at the top of the payment hierarchy, ensuring they receive their dues before others.

Unsecured creditors follow, with shareholders typically being the last to be paid after the liquidation of a company.

This prioritisation helps manage the distribution of assets fairly and legally, ensuring that the most critical claims are addressed first.

For expert guidance and support during the liquidation process, Business Helpline is here to assist you.

Contact us today to learn more about your options and ensure a smooth liquidation process.

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    Andy Slinger

    Andy is Head of Marketing for Business Helpline with a wealth of experience Marketing in the financial sector. He has a passion for helping business owners struggling with debts.