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 as they fall due 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.
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