When a company goes into administration who gets paid first?
Once a company going into administration has obtained an insolvency administration order, then the firm in administration has an independent administrator appointed over it. It is the function of the administrator to collect in the assets of the firm in administration in order to make payments to creditors of the business under administration according to a strict priority order set out by company insolvency legislation. It is unfortunately a fact that company administration does not always yield a full return for a creditor, however putting a company into administration leading to an insolvency administration order will often lead to a certain payment as a percentage in the pound for creditors, and it is vital for creditors that they maximise their chances of recovery of their debt if this occurs.
The administrator who acts for a business under administration may be instructed to sell parts of the business or assets of the firm in administration, so that those buying a company in administration can provide monies for a business under administration to repay at least some of its debts to creditors. This may be by way of a pre-pack administration sale of the business.
Priority of creditor payments in a company administration
The administrator acting for the business under administration will follow the company administration procedure and will repay creditors in accordance with a statutory order of priority.
The general rule is that after repayment of expenses and preferential debts and secured creditors, ordinary creditors rank equally. Return to creditors depends on what is available when putting a company into administration. The statutory order also provides a mechanism for calculating future debts and contingent debts for the purposes of the company administration procedure.
First priority is given to secured creditors such as those with a charge over company under administration’s assets. It is of advantage to a creditor to try to ensure that as far as possible their debts owed by a firm in administration are secured, even if only partially.
A supplier can often enhance their position by supplying goods which incorporate a reservation of title clause, which prevents title in the goods being passed to the business under administration until payment has been made in full.
Expenses of the company administration procedure will generally be paid before distribution to general creditors in a company insolvency. When an administration order is made on a company insolvency the administrator of the firm in administration will need to incur expenses such as legal costs, fees and other charges incurred in the course of the company administration procedure, and these will take priority.
Contact the expert lawyers today
If you find that a company in administration owes you money, or that you are an owner of a business under administration and you want to take advice on the best way to deal with creditors, then our experienced team at Francis Wilks & Jones can provide you with expert advice.