DISTINCTION BETWEEN UNSECURED AND SECURED CREDITORS
Understanding the Distinction Between Unsecured And Secured Creditors?
If you run a limited company and it has outstanding money owed to any party, then it is known as creditors. Creditors are either ‘secured’ or ‘unsecured’, and which category your creditors fit into depends on the assets involved, and what charges they hold over the company. These charges, however, become even more significant if a company becomes insolvent, as they determine the order that creditors receive reimbursement from any repayments.
When a company becomes insolvent, it will owe creditors debts. A payment hierarchy categorises creditors based on entitlement to proceeds and when they can claim them. The categories in descending order: secured creditors with fixed charges, preferential creditors, secured creditors with floating charges, unsecured creditors, and finally shareholders.
Secured creditors with fixed charges remain first on the tree to receive proceeds from a liquidated or insolvent company. Usually, lenders or suppliers with a registered charge over business assets.
Distinction Between Unsecured And Secured Creditors – FIXED CHARGE CREDITORS
Secured creditors can only rank first if they hold fixed charges. A fixed charge retains a charge or claim over specific assets of the company. Companies House registers in all cases charges over such assets. Fixed charges and assets may therefore not be disposed of without conferring first with the secured creditor over the assets.
Assets which may have a fixed charge:
- Motor vehicles – Cars, Lorries, Buses etc.
- Premises – Land, offices, buildings etc.
- Vehicles – Cars, Lorries, Buses etc.
- Sales Ledgers – Debtors of a trading company.
- Fixed charge creditors usually first to be repaid during an insolvency process.
FLOATING CHARGE CREDITORS
Floating charge creditors remain down the payment tree compared to preferential creditors. Usually, they have no claims registered over company fixed assets. They though will have assets which ever-change (Debtors & Stock). Floating charges, however, afford basic security for creditors, though because the assets aren’t fixed, recovery can be challenging.
MY CREDITORS, WHO Remain UNSECURED?
Unsecured creditors rank after secured and preferential creditors on the payment tree. Unsecured creditors, however, have no security over company assets. Therefore, they often do not receive money compared to preferential and secured creditors.
Distinction Between Unsecured And Secured Creditors – UNSECURED CREDITORS
If you have an insolvent company, what happens to the creditors? It is important to understand the distinction between unsecured and secured creditors?
Once a trading company becomes insolvent, usually owes money to its creditors. A payment tree then ranks creditors on how they’re repaid. Based on security and ranking, therefore outlines priority for
repayment and when they may claim them. Creditor types are then known as the following. The first is paid out in preference to the others. They then rank in order of preference: secured creditors with fixed charges, preferential creditors, secured creditors with floating charges, unsecured creditors, and finally shareholders.
If your company has received a winding-up petition, then ACT FAST. Dealing with a winding up petition swiftly is important. Make contact with HBG ADVISORY to ensure you keep as many resolution options open as possible.
UNSECURED CREDITOR Examples?
TRADE SUPPLIERS – Supplying goods etc. to the company
CONTRACTORS – Those who carry work on behalf of the company.
The HMRC – VAT, Corporation Tax. PAYE & NATIONAL INSURANCE ETC
Potentially Customers of the company.
UNSECURED CREDITORS – The best direction to recover unsecured debts?
Unsecured creditors remain down the payment tree. They can however issue reminders and letters of notice to recover any debt owed. When these methods fail, creditors may then resort to more severe actions:
INSTRUCT FOR A COUNTY COURT JUDGEMENT.
Appoint bailiffs to secure them and retrieve assets to cover the outstanding debt’s amount.
Instruct and forward a statutory demand to the outstanding creditor.
Issue a winding-up petition (WUP).
Once chasing creditors instruct bailiffs or High Court Enforcement Officers to attend your premises, it’s then imperative you understand the powers they can exercise. You should also understand your rights and what they may legally remove.
IMPORTANT – Never disregard the threat of a winding-up petition (WUP). If you disregard them, your company faces insolvency, and potentially a liquidation may follow if you take action and the petition.
Preferential creditors rank like unsecured creditors. However, they have no charge, but prefer status, for payment before other creditors in that division. Employees of the failed company rank as preferential creditors if owed wage arrears, outstanding holiday pay, pension contributions and other associated employment costs. Capping exists on the amount available to claim.
HOW DO SHAREHOLDERS RANK?
Shareholders of the failed company remain the last group to be repaid. They have no security ranking and may only receive proceeds once all other creditors are repaid.
HOW CAN HBG ADVISORY HELP YOUR FAILING BUSINESS?
When your company has no ability to clear its debt to creditors, or maybe your business has potential or indeed pending legal action, then as a responsible director, you need to seek help immediately. Our experienced team can discuss your financial situation and offer the best solution to your company’s problems, even if legal action is in progress. Our highly experienced team will direct you so you may settle on the arrangement for your company and help with the proposed plan to your company’s outstanding creditors, stressing the overall benefits to the company’s creditors. HBG Advisory offers free, no-obligation, unbiased advice. and we offer online secure consultations in the privacy of your home or office, with no awkward people attending causing distress in the workplace.