What are the first payments to creditors in liquidation?


Liquidation is the process of termination of the activity and distribution of their assets to the appellants. This often happens when the company is insolvent, meaning it cannot pay its obligations as they come due for repayment. In section 507 of the bankruptcy Code, he argues that if a Corporation is liquidated, the payout to creditors in a particular order: secured creditors, as secured bonds to the first priority. This is accompanied by unsecured creditors. They are, as a rule, suppliers, employees, banks and shareholders.

How resources are distributed in corporate liquidation

Of bonds and other payments to secured creditors are paid first because their money is usually guaranteed or “secured” by collateral or contract.

After payment of secured creditors are paid, unsecured creditors will be paid in the next. The first tier of unsecured creditors are those that have the right to receive money from the company, but their claims are not secured or guaranteed. This group of lenders includes: Bank, creditors, employees, government (unpaid taxes), suppliers and investors who have unsecured bonds.

The last group is the General creditors, which consists of the shareholders or of the shareholders. This set of creditors to be paid if there is money left over after all other creditors were paid. General creditors are divided into creditors who have preference shares and those ordinary shares. Holders of preferred shares are paid to those who have ordinary shares. If there is no money, after the holders of preferred shares are paid, the holders of ordinary shares do not receive any money.

Bottom Line

In fact, unsecured creditors are paid after secured creditors and bondholders, because the bondholders have a guarantee from the company. Unsecured creditors are paid before shareholders, since shareholders are owners of the company and to take more risk.

(To learn more about corporate bankruptcy, please refer to the overview of corporate bankruptcy.)

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