When a company has a major financial issue, they can become insolvent. Insolvency comes into effect when the company doesn’t have enough cash to pay its debts on demand.
What Comes After A Company Is ‘Wound Up’?
Liquidation Debt Recovery Priority
If monies are realised from the assets of the company, these will be released in accordance with a certain priority. The priority of payment is listed below:
First in line for the payment are the liquidator and the costs of his services.
Then there are the creditors who had been granted security - like banks, lenders and finance providers. These are called the Secured Creditors.
Only after the secured creditors have been paid, the company employees claims can get in line for the payout, and those are still subject to the limits that the government has set in place.
After the company employees have been paid, next in line for the payout are unsecured creditors like suppliers, landlords, contractors, clients that are due for a refund, and taxmen.
The last in payout order of priority are the shareholders.
What Happens With Insolvency Payout?
Belts and Braces
When giving credit to a company consider whether you obtain a Personal Guarantee from a debtor. This way if a company does become insolvent you can have another chance of getting paid in full, this time from the Director personally.
Free Letter Before Action
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