How are creditors repaid during administration?

During administration, creditors are repaid from the realisation of company assets and, in some cases, ongoing trading profits. The administrator must follow a strict order of priority when distributing funds. Secured creditors with fixed charges, such as banks with mortgages over property, are paid first from the sale of those assets. Next, preferential creditors, including employees owed wages and holiday pay, are paid. Following this, secured creditors with floating charges are repaid, after a prescribed part is set aside for unsecured creditors. Finally, remaining funds are distributed among unsecured creditors on a pro-rata basis. In reality, unsecured creditors often receive only a small percentage of what they are owed, which is why administration is sometimes less attractive to them compared to a CVA. The administrator provides regular reports to creditors explaining what recoveries are being made and how distributions are being calculated, ensuring transparency throughout the process.