The difference between secured and unsecured creditors
Most companies owe money to creditors, its part and parcel of running a business. A successful company probably does not give much thought as to what type of creditor these debts are owed. However, if a business starts to struggle to pay their debts and subsequently becomes insolvent it becomes quite important to understand the difference between secured or unsecured creditors, which category they fall into and what charges they hold over the company.
Similarly, on the flip side if you are a director of a company who is owed money by a client it’s useful to understand the chances of recovering your money should the client fall into insolvency. Alternatively read our page on recovering overdue debts here.
Debts owed by an insolvent company fall into a defined payment hierarchy:
- Secured creditors with fixed charges
- Preferential creditors
- Secondary preferential creditors (HM Revenue & Customs)
- Secured creditors with floating charges
- Unsecured creditors
Debts are paid off in the order as listed above with the secured creditors being paid first and the unsecured creditors and shareholders last. Hover over the boxes below to see more detail about each creditor.