Part of doing business is coming up with the funds you need to keep your daily operations running. This usually means that you are turning to lenders, investors or other means of financing. When you owe money to someone, you are known as the debtor. They are known as the creditor. In business, there are secured and unsecured creditors. It is important that you understand the difference between the two of them. Principle Insolvency is here to talk about what sets apart secured creditors from unsecured creditors.
What is a Secured Creditor?
The best way to describe a secured creditor is someone who has the power to sell assets or repossess assets from a debtor that isn’t paying them back. When someone falls behind on their payments, it is possible that they are in insolvency as a company. This makes getting your money seem tricky. However, as a secured creditor, you can sell the assets to get your payment. If the total amount falls short of what they owe, you may be able to get that money back if the asset was valued at a higher dollar amount as an unsecured creditor. If there is a surplus after selling assets, you will be required to pay that amount to the Official Assignee as that money will be used to pay back other creditors. When you are owed money by a company that is insolvent, there is no way for the financial agreement to continue. You will face the decision to:
– Sell assets & deal with shortfall
– Value the secured assets & claim as an unsecured creditor
– Claim in the liquidation for the entire debt as an unsecured creditor & one up the security
What is an Unsecured Creditor?
An unsecured creditor is someone who is owed money by a debtor but don’t have any right to sell assets or repossess them if they fail to make their payments to you. Different circumstances for unsecured creditors include:
– Bankruptcy or Liquidation: As an unsecured creditor in a situation where the company is bankrupt or liquidated, you will want to make a claim to the estate so that they are aware of you.
– No Asset Procedure: This means that there aren’t assets to be sold or there isn’t enough income to pay you back. You don’t have to make a claim on the money, but you also can’t keep coming after the debtor for the money either.
– Debt Repayment Order: This allows the debtor to pay back unsecured creditors using installments or a payment plan. Usually, these arrangements last between 3-5 years.
– Voluntary Administration: This situation is an alternative to liquidation where the administrators call for a meeting with creditors to discuss a path forward.
Insolvency Services in Auckland, Hamilton, Levin & New Zealand Wide
If your company is in trouble, or you are a creditor that isn’t getting payments that are rightfully owed you, you can turn to Principle Insolvency to get the liquidation ball rolling. Call us today!