What are creditors’ rights in a liquidation process?

Understanding the rights of both secured and unsecured creditors when a company is liquidated

In a voluntary or compulsory liquidation process, both secured and unsecured creditors have certain rights.

As far as secured creditors are concerned, a defined hierarchy for repayment allows them to be repaid ahead of other creditor groups.

While unsecured creditors tend to suffer greater financial losses during a liquidation process, they do still have a number of rights during liquidation and are entitled to be fully informed throughout the process.

Secured and unsecured creditors both have the right to challenge the liquidator’s remuneration if they feel it is too high, and can do so by making a court application.

What are secured creditors’ rights in a liquidation process?

Secured creditors lead the ‘hierarchy’ for repayment once the costs of liquidation have been covered. Those with a fixed charge on one or more of a company’s assets are entitled to receive the funds from the sale of the asset in liquidation.

A fixed charge may have been granted to the bank, or an asset-based lender for example, with fixed charges often covering hard assets such as property, land, plant and machinery, and vehicles, as well as intangible assets including intellectual property and patents.

 

 

 

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Unsecured creditors’ rights during liquidation

Creditors’ meetings

Recent legislative changes have altered the requirement for a liquidator to automatically hold ‘in-person’ creditors’ meetings unless a specific number of unsecured creditors request it. Ten percent of creditors, either by value or number, or 10 individual creditors, can request that such a meeting is held, otherwise proposals and notices can be sent via electronic means. All creditors, whether secured or unsecured, have a right to be invited to a creditors' meeting

Appointment of liquidator

Creditors have the right to vote on the appointment of a liquidator during a Creditors’ Voluntary Liquidation, and although shareholders will already have appointed an insolvency practitioner to assume this role, creditors can choose a different liquidator if they wish.

“After submitting my '60 Second Test' I received a complimentary Insolvency Options guide packed full of useful information. The team of insolvency specialists phoned me back in less than 10 minutes after reviewing my details and guided me through the next steps. Really helpful! Thank you Sophie!”

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Sophie Schofield
Business Debt Expert

Liquidation Committee

During compulsory and voluntary liquidation proceedings, unsecured creditors have the right to form a creditors’ liquidation committee. This usually consists of between three and five members, their role being to oversee the liquidation process on behalf of unsecured creditors as a group.

One of their initial duties is to agree the office-holder’s fee, but they also have the right to monitor the liquidator’s actions during the process. Committee members do not receive payment for their role, but are entitled to claim for reasonable travelling expenses if applicable.

Further rights of the liquidation committee include:

Goods belonging to the creditor

If the debtor company is in possession of goods belonging to an unsecured creditor, and the creditor can prove ownership, they have the right to make a claim for their return, or reimbursement via the liquidator.

Claiming interest on the debt

Unsecured creditors can claim interest on the debt up to the date of liquidation under certain circumstances. The creditor may have stated their intention to charge interest within the initial contract, for example, or provided notice in a reminder that interest will become due.

Repayment following liquidation

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Real Business Rescue can offer professional advice and guidance on liquidation procedures. With a network of 100+ UK offices offering free same-day appointments, we can quickly establish your needs and provide professional advice on the best options.