Question

A company has been placed into a court ordered liquidation.

Discuss the order of payment to creditors and place the following creditors in the correct order for repayment:

1. Costs of the liquidator
2. Telephone bill outstanding
3. Fees owing to auditor
4. Council rates for the past year
5. Arrears of dividend on cumulative preference shares
6. Bank loan secured by the companies’ property
7. Retrenchment payments
8. Uncovered portion of the bank loan in (f)
9. Workers compensation
10. Calls in advance

Answer 1

   Order of payment to creditors

When a company goes through litigation the creditors are paid in a particular order as per Sec 507 of Bankruptcy Code.

Secured creditors including secured bondholders paid first and must be paid in full before.Then, Unsecured creditors example company supplier,employees and banks. Stockholders are Last.

Correct order for Repayment:

1. Bank loan secured by the companies’ property

2. Uncovered portion of the bank loan in (f)

3. Retrenchment payments

4. Workers compensation

5.  Fees owing to auditor

6. Council rates for the past year

7. Telephone bill outstanding

8. Calls in advance

9. Arrears of dividend on cumulative preference shares

10. Costs of the liquidator