Are you curious to know what is preferential creditors? You have come to the right place as I am going to tell you everything about preferential creditors in a very simple explanation. Without further discussion let’s begin to know what is preferential creditors?
What Is Preferential Creditors?
In the event of a company going into liquidation or bankruptcy, there are various categories of creditors who are entitled to receive payment from the company’s assets. Preferential creditors are a specific category of creditors who are entitled to receive priority over other creditors. In this blog post, we will explore preferential creditors in more detail, including who they are, their rights, and their role in the liquidation process.
Who Are Preferential Creditors?
Preferential creditors are creditors who have a higher priority than unsecured creditors but a lower priority than secured creditors in the liquidation or bankruptcy process. They are entitled to receive payment before other unsecured creditors but after secured creditors. Preferential creditors include:
- Employees: Employees who are owed wages or other employment-related payments are considered preferential creditors.
- HM Revenue and Customs (HMRC): HMRC is a preferential creditor for certain taxes owed by the company, including VAT, PAYE, and National Insurance.
Rights Of Preferential Creditors
Preferential creditors have several rights in the liquidation or bankruptcy process, including:
- Priority Payment: Preferential creditors are entitled to receive payment before other unsecured creditors, but after secured creditors.
- Proof of Debt: Preferential creditors are required to submit a proof of debt to the liquidator or administrator to claim their entitlements.
- Challenge Decisions: Preferential creditors have the right to challenge decisions made by the liquidator or administrator that may impact their entitlements.
Role Of Preferential Creditors In Liquidation
Preferential creditors play an important role in the liquidation process. They are entitled to receive priority payment from the company’s assets, and their claims must be satisfied before other unsecured creditors. The liquidator or administrator is responsible for identifying and notifying preferential creditors of their entitlements and ensuring that their claims are paid in accordance with the law.
Conclusion
In conclusion, preferential creditors are a specific category of creditors who have priority over other unsecured creditors in the liquidation or bankruptcy process. They include employees and HMRC, who are entitled to receive payment from the company’s assets before other unsecured creditors. Preferential creditors have several rights, including priority payment and the ability to challenge decisions that may impact their entitlements. The liquidator or administrator is responsible for identifying and notifying preferential creditors of their entitlements and ensuring that their claims are paid in accordance with the law.
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FAQ
What Is Meant By Preferential Creditors?
A preferred creditor, also known as a “preferential creditor”, is an individual or organization that has priority in being paid the money it is owed if the debtor declares bankruptcy.
What Is Preferential Debt Example?
Examples of Preferential debts in a sentence
Preferential debts were previously limited, broadly, to unpaid contribution obligations to occupational pension schemes, certain claims of employees in relation to remuneration, and unpaid levies on coal and steel production.
What Is A Non-Preferential Creditor?
Non-preferential creditors, also known as unsecured creditor, are usually standard trade creditors and, in cases of insolvency, are paid after preferential debts have been settled.
Who Gives The List Of Preferential Creditors?
Preferential Creditors as per List D. Following creditors comes under the category of preferential creditors and such creditors get preference over the un-secured creditors. Government and local authority.
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