LAWS2034 Introduction to Commercial Law

Prof Uta Kohl U.Kohl@soton.ac.uk

Winding –Up of an Insolvent Company

Hierarchy of Creditors - Order of Distribution of Assets

1. Assets not available for distribution

(assets which do not ‘belong’ to the company)
 Assets in which title has been retained by creditor (retention of title clause)
 Assets in which title has been transferred (to TP)
 Assets subject to a fixed charge
 Property held on trust by co for the benefit of creditor

2. Cost , Charges & Expenses of the Winding-Up

(eg. electricity supply, water, rent, remuneration of liquidator)

3. Preferential Creditors - s.175 Insolvency Act 1986

(rank equally amongst themselves)
 employees - ss.182 Employment Rights Act 1996 (payment out of the
National Insurance Fund – later Fund surrogated to the employee’s claim;
max amount of £544)
 Secondary preferential creditor: Inland Revenue/HMRC (Finance Act 2020)

4. Holders of debentures secured by a floating charge & holder of floating charge

s.176ZA, 176ZB and 176A
 s.176A: the liquidator, administrator or administrative receiver of the
company must set aside a ‘prescribed’ amount of the company’s net property
for unsecured creditors (net property includes any property subject to a
floating charge)

5. Unsecured (normal) Creditors

 pari passu distribution – all creditors participate in the pooled assets in
proportion to the size of their claims

6. Deferred Debts
 interest on all proved debts (from time of liquidation to actual payment)
 arising from company contracted to redeem or purchase some of its shares
(& co has not completed the transaction at the time of liquidation)
 any debt or liability due to a member in his character of a member whether
by way of dividends, profits or otherwise (but note debts due to member in
other capacities eg. lender or trade creditor same as if not a member)