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 parties, then there known as creditors. Creditors 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 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 debts to creditors. 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

Secured creditors with fixed charges remain first on the tree to receive proceeds from a liquidated or insolvent company. Usually, lenders or suppliers that have 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 not be disposed of without conferring with the secured creditor over the assets first.

Assets which may have a fixed charge :

Motor vehicles – Cars, Lorries, Busses etc
Premises – Land, offices, buildings etc
Vehicles – Cars, Lorries, Busses etc
Equipment.
Machinery.
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 when 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 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 have no security over company assets. Therefore they often do not receive money when 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 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. Make contact with HBG ADVISORY to ensure you keep as many resolution options available open as possible.

UNSECURED CREDITOR Examples?

TRADE SUPPLIERS – Supplying good 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 recovering unsecured debts?

Unsecured creditors remain down the payment tree. They can issue reminders and issue letters of notice to recover any debt owed. when these methods fail, creditors then may resort to more severe actions:

INSTRUCT FOR A COUNTY COURT JUDGEMENT.

Appoint bailiffs to secure 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 imperative you understand the powers they can exercise. You should also understand your rights and what they legally allowed may remove.

IMPORTANT – Never disregard the threat of a winding-up petition (WUP). If you disregard then your company faces Insolvency and potentially a liquidation may possibly follow if you take action and the petition

Preferential Creditors

Preferential creditors rank similar to unsecured creditors except they have no charge but have preferred 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 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 URGENTLY. Our experienced team can discuss your financial situation and offer the best resolution to your company’s problems, even if legal action in progress. Our highly experienced team will direct you so may settle on the arrangement for your company and help with the proposed plan to your companies outstanding creditors, stressing the overall benefits to the creditors of the company. 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.