What is the order of repayment in liquidation?

When a company is liquidated, creditors are repaid in a strict statutory order of priority. First, secured creditors with fixed charges, such as banks holding mortgages over property, are paid from the sale of the specific secured assets. Next, the costs of the liquidation, including the liquidator’s fees, are settled. Following this, preferential creditors—primarily employees owed wages and holiday pay—receive their entitlements up to statutory limits. Secured creditors with floating charges, such as debentures covering general company assets, are then repaid, subject to a ‘prescribed part’ being set aside for unsecured creditors. After this, unsecured creditors are paid pro-rata from whatever remains, meaning they usually receive only a small percentage of what they are owed. Finally, if there are any surplus funds, these are returned to shareholders. In insolvent liquidations, unsecured creditors and shareholders rarely receive significant distributions. Understanding this order helps creditors manage expectations and highlights why directors should act early to preserve value.