Priority of creditors

In this lesson

1. 0:00 Priority of creditors in liquidation
2. 0:08 Liquidation costs and secured charges
3. 0:22 Preferential and secondary creditors
4. 0:43 Floating charges to unsecured creditors
5. 1:04 Return of capital to shareholders

About this lesson

The priority hierarchy runs as follows: liquidation costs are covered first, then fixed charge holders such as mortgage lenders, followed by preferential creditors (mainly employees, subject to a statutory cap). Secondary preferential creditors including HMRC come next for any outstanding VAT, payroll tax, or corporation tax. Floating charge holders are paid thereafter, then unsecured creditors like suppliers and any declared but unpaid dividends. Finally, capital is returned to shareholders—preference shareholders first, then ordinary shareholders—with any remaining surplus distributed to ordinary shareholders last. This ranking reflects the legal principle that secured and priority claims must be settled before general creditors and equity holders receive anything. Knowing this order helps you understand why certain stakeholders have stronger claims than others and is crucial for questions involving company insolvency, administration, and liquidation scenarios.

Duration: 2m