If a company is facing insolvency, one of the best options might be liquidation to help get things settled. When this happens, the financial priorities of the company are going to shift. They will be working with a liquidator to settle debts and to do it in an organized fashion. There might be assets that are sold during this time to help pay these outstanding debts to creditors. Principle Insolvency is here to talk about what order everyone is going to get paid in when a company is facing liquidation.
Order of Payment When a Company is Liquidated
As mentioned above, there is a great deal of order involved with a company that is facing liquidation. The whole point of liquidation is to help get those creditors paid. Here is the order of payment in these circumstances:
– Liquidation Fees: There are certain fees that are part of the liquidation process. The liquidator will be paid, legal costs and asset preservation costs. This is the first thing that gets paid.
– Secured Creditors: The next people in line to get paid are the secured creditors. They will be a top priority for any business that is facing liquidation. They actually hold legal claim over any company assets. This could include things like inventory, property and equipment. These assets might need to be sold to pay the secured creditors.
– Preferential Creditors: There are also preferential creditors to think about when a company is being liquidated. They are given special status under law. The first group of preferential creditors are employees. They are prioritized for any unpaid wages, holiday pay or redundancy entitlements that might be owed to them. Another category that falls under preferential creditors is the Inland Revenue Department. This includes tax obligations. They fall under the preferential creditor category to ensure they are in compliance with government regulations.
– Unsecured Creditors: Next in line is going to be any unsecured creditors. When you think about this group, it will include suppliers, contractors and lenders. These people are at the highest risk when the company is liquidated.
– Shareholders: The last and final group of people that will get a refund when a company is liquidated are the shareholders. If there are any funds left over after all the above groups are paid, the shareholders will receive what is left over. They are entitles to any surplus of funds. Most of the time, there aren’t any leftover funds to speak of.
If you are a business that is in trouble, and you are worried that you are going to be facing insolvency soon, you can turn to Principle Insolvency to help walk you through the options that are available to you. You can rely on us to walk with you every step of the way when you’re facing financial uncertainty. If you need some guidance through the process, you can turn to use to provide you with what you need. Call us today!