Who gets paid first when a company enters administration?

When a company is forced into administration there is a long list of people waiting in line for their payment before things can be fully wound up and laid to rest; it's a stressful set of procedures.

Equally stressful is waiting for products or money from a company that has entered administration. Insolvency practitioners do, however, have to follow strict regulation when it comes to payout, so who gets paid and when will depend on their status in relation to the business.

The process is under regular review by the government and the insolvency industry itself to try and find the fairest way of proceeding but at the moment the procedure for who gets paid first when a company enters administration is as follows...

At the top of the tree are the insolvency practitioners themselves. Administrations are these companies' bread and butter, they will ensure that the sale of the distressed business brings in funds to pass on to everyone else, but understandably, they sort themselves out first.

The one group of people the insolvency practitioners have to put on equal footing with themselves are the secured creditors – official lenders such as banks and asset-based lenders that the business had arrangements and guarantees in place with.

When these two have been sorted, it's on to the preferential creditors, namely employees. Next up, unsecured creditors such as HMRC, customers, suppliers and contractors.

And finally at the bottom of the tree are the shareholders, who will only receive any payment from the insolvency business if all of the above have been paid.

If you would like to capitalise on distressed businesses long before anyone else, then you need to subscribe to the Business Sale Report today, to begin accessing our range of administration alerts for insolvent companies about to fail.

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