Who gets paid first when a company goes into liquidation?

Updated: 24th January 2021

Order of payment priority for creditors during company liquidation

A preferential creditor is a creditor who is granted preferential status during an insolvent liquidation by receiving the right to first payment, a hierarchy established by the Insolvency Act 1986.

An official ‘hierarchy’ laid down by the Insolvency Act, 1986, determines which group of creditors is paid first during an insolvent liquidation. When a company enters liquidation, each class of creditors must be paid in full (the exception being ‘prescribed part’ secured creditors) before funds are allocated to the next.

Creditors are ranked as follows:

  • Secured creditors with a fixed charge
  • Administrator/Liquidator fees
  • Preferential creditors
  • Secondary preferential creditors (expanded to include HMRC for certain taxes)
  • Secured creditors with a floating charge
  • Unsecured creditors (including all other HMRC debt)
  • Shareholders

Secured creditors with a fixed charge

Fixed charge holders are often banks and other asset-based lenders who hold title over a business asset. When a fixed charge is provided to the lender your company loses the right to sell or trade the item. Assets typically covered by a fixed charge include property, plant, machinery, and vehicles.

Assets used in this way are often fundamental to a business, and unlikely to be sold in the normal course of events. Depending on the original agreement, however, in liquidation the asset can be sold by the charge-holder or liquidator to realise funds.

Preferential creditors

Preferential creditors include employees entitled to arrears of wages up to a maximum of £800, and holiday pay.

Secondary preferential creditors

As of 1 December 2020, HMRC moved up the order of priority from unsecured creditors to secondary preferential following new legislation. 

Only certain specified HMRC debts are included. These are:

  • Value Added Tax (VAT), and debts that relate to the following taxes:
  • Pay As You Earn (PAYE) Income Tax
  • Employee National Insurance contributions (NICs)
  • Student loan repayments
  • Construction Industry Scheme deductions

These debts are only preferential if the insolvent business entered a formal insolvency procedure on or after 1 December 2020. For businesses that did enter insolvency on or after that date, the full amount of the specified debts which arose prior to the date of insolvency is payable as a secondary preferential debt.

Secured creditors with a floating charge

Assets subject to a floating charge often include stock, raw materials, work-in-progress, fixtures and fittings – basically any other assets not subject to a fixed charge. Assets of this type can be traded in the normal course of business. Floating charge creditors are entitled to receive a distribution from the net property of the company (the amount remaining after the application of costs) subject to the dilution of the prescribed part.

The ‘prescribed part’ refers to an amount set aside from the sale of floating charge assets net of costs of the liquidation and applies to charges taken out after 15th September 2003. This sum is used to provide unsecured creditors with a greater chance of recovering some of their debt.

Fifty percent of the first £10,000 realised from the sale of floating charge assets is set aside in this way, and then 20% of any further realisations up to £600,000. Terms and conditions relating to fixed and floating charges are laid out in a debenture - a document which is signed by the directors and registered by the lender at Companies House.

Unsecured creditors

These include trade creditors, suppliers, customers, contractors, some staff claims, rent arrears and lease dilapidations, unsecured loans from banks and lenders, unsecured overdrafts, friend and family loans to the business, directors loan accounts that are in credit, and the shortfall on any fixed or floating charge - to name just several examples.


Shareholders are the final group to be paid. Because they have taken a business risk in providing money to the company, they are not entitled to a distribution until all other creditor groups have been paid.

How Begbies Traynor can help

Each class of creditor must be paid in full before the liquidator can distribute funds to the next group. It’s important to maximise the interests of creditors once you enter insolvency, otherwise you may be open to accusations of wrongful or unlawful trading.

Fixed and floating charges are a complex area to understand, particularly if more than one charge has been taken on an asset. Begbies Traynor can clarify your company’s financial position, and identify who takes priority in cases where more than one charge-holder is in place.

We’ll also ensure you meet your legal obligations as a director of an insolvent company, and help to reduce your risk of allegations of misfeasance and wrongful trading.

Network of Over 100 UK Offices

Find your local Begbies Traynor Group office and speak to an adviser today.

Find your Local Office
0800 063 9221

Call our Confidential Advice Line. Calls to this number are free of charge.

Call us now...
Request a Meeting

We invite you to come and discuss your enquiry with us at your convenience.

Request a meeting...
0800 464 0871

Call our Confidential Advice Line. Calls to this number are free of charge.

Call us now...
Request a Meeting

We invite you to come and discuss your enquiry with us at your convenience.

Request a meeting...
0161 837 1700

Call our Confidential Advice Line. Calls to this number are free of charge.

Call us now...
Request a Meeting

We invite you to come and discuss your enquiry with us at your convenience.

Request a meeting...
Begbies Traynor Group plc, announces that it has completed the acquisition of CVR Global LLP
CVR is a leading independent firm of insolvency practitioners, forensic accountants and experts in other related complementary disciplines.
Read More →
Coronavirus pushes financially distressed companies over the half-million mark
Number of businesses in significant distress stands at 509,000 – the highest number measured by the Red Flag Alert research
Read More →
BTG Advisory accelerates growth with appointment of four new partners to its London office
BTG Advisory, the boutique advisory arm of Begbies Traynor Group announces the appointment of four new partners to its Canary Wharf office
Read More →
Eighty jobs saved with £1m sale of engineering business
South Yorkshire company Newburgh Precision rescued through administration
Sale enables 75-year-old business to continue trading
Read More →
Join thousands of professionals by signing up for our updates
Analysis and Opinion from our Partners
Top Industry News
Register Now →

Advice you can trust

We are accredited by the following industry leading organisations

Insolvency Practitioners Association Institute of Chartered Accountants in England and Wales R3: Association of Business Recovery Professionals ICAEW Business Advice Service Turnaround Management Association ICAS | The Institute of Chartered Accountants of Scotland

Contact the Begbies Traynor Group team

or Find your Nearest Office

Here at Begbies Traynor Group we take your privacy seriously and will only use your personal information to contact you with regards to your enquiry. We will not use your information for marketing purposes. See PRIVACY POLICY


This site uses cookies to monitor site performance and provide a more responsive and personalised experience. You must agree to our use of certain cookies. For more information on how we use and manage cookies please read our PRIVACY POLICY