World Library  
Flag as Inappropriate
Email this Article

Preferential creditor

Article Id: WHEBN0005747598
Reproduction Date:

Title: Preferential creditor  
Author: World Heritage Encyclopedia
Language: English
Subject: Liquidation, Bankruptcy, Hong Kong insolvency law, Wrongful trading, Cayman Islands bankruptcy law
Collection: Bankruptcy, Credit, Insolvency
Publisher: World Heritage Encyclopedia

Preferential creditor

A preferential creditor (in some jurisdictions called a preferred creditor) is a creditor receiving a preferential right to payment upon the debtor's bankruptcy under applicable insolvency laws.

In most legal systems, some creditors are given priority over ordinary creditors, either for the whole amount of their claims or up to a certain value. In some legal systems, preferential creditors take priority over all other creditors, including creditors holding security, but more commonly the preferential creditors are only given priority over unsecured creditors.[1] Some legal systems operate a hybrid approach; in the United Kingdom preferential creditors have priority over secured creditors whose security is in the nature of a floating charge, but creditors with fixed security take ahead of the preferential creditors generally.


  • Classes of preferred creditors 1
  • Admiralty claims 2
  • See also 3
  • References 4

Classes of preferred creditors

Creditors who are characteristically preferred creditors are:

  • employees: If a company goes bankrupt, the employees of that company will be first in line to be paid. If the company owes wages, this is considered to be the top priority when it comes to dissolving the company.
  • revenue authorities: When a government is owed taxes, they are on the top of the list to get paid.
  • in some countries, tort victims: The rationale for tort victims is that they are perceived to be "involuntary" creditors of the bankrupt and thus should not be penalised by an insolvency in the same manner as parties who voluntarily became creditors of the bankrupt.
  • in some countries, environmental clean-up costs: If a business files for bankruptcy and it is determined that they need to clean up the environment as a result of their business actions, the environmental clean up will get preferential treatment. The courts will allocate a designated amount of money to pay for the cleanup efforts.[2]

In the United Kingdom, employees’ holiday pay/wages are classed as preferential – if they are paid via redundancy payments fund then the Department of Employment becomes a secured creditor. If there is a shortfall, in those cases where someone earns in excess of the government limit, then they can claim preferentially too. [3] The right of the Crown as a preferential creditor was removed by the Enterprise Act 2002.[4]

Creditors, and sometimes individual assets, are also placed in classes by specific laws for specific events, such as a deposit insurance scheme triggered by a bank failure. For example, Switzerland's deposit protection has Class I (first-class), Class II (second-class) and Class III (third-class) unsecured creditors.[5] following are the preferential creditors:- 1.all revenues, taxes, cesses and rates, whether payable to the Government or local authority, due to payment by the company with in 12 months before the date of commencement of winding up.[6]

Admiralty claims

In admiralty law, many legal systems accord certain claims preferential status where a ship is subject to arrest. These claims vary from country to country, but commonly include:

  • salvage claims
  • seaman's wages
  • moorage fees: Cost of mooring is often a preferential claim of expediency. Otherwise it would be difficult to arrange mooring for vessels which are subject to arrest.

See also


  1. ^ "Liquidation: a guide for creditors" (PDF). Australian Securities & Investments Commission. Retrieved 29 July 2014. 
  2. ^ "4 Types of Preferential Creditors". Retrieved 29 July 2014. 
  3. ^ Smith, Mike. "Company Liquidation: A Directors’ Guide to a Creditors’ Voluntary Liquidation". Retrieved 24 July 2014. 
  4. ^ "Enterprise Act 2002". The Crown of United Kingdom. 
  5. ^ Einlagensicherung. Deposit Protection of Swiss Banks and Securities Dealers. Retrieved 2008-10-09 (English)
  6. ^ "Companies Act 1956" (PDF). Government of India: Ministry of Corporate Affairs. 18 Jan 1956. Retrieved 29 July 2014. 
This article was sourced from Creative Commons Attribution-ShareAlike License; additional terms may apply. World Heritage Encyclopedia content is assembled from numerous content providers, Open Access Publishing, and in compliance with The Fair Access to Science and Technology Research Act (FASTR), Wikimedia Foundation, Inc., Public Library of Science, The Encyclopedia of Life, Open Book Publishers (OBP), PubMed, U.S. National Library of Medicine, National Center for Biotechnology Information, U.S. National Library of Medicine, National Institutes of Health (NIH), U.S. Department of Health & Human Services, and, which sources content from all federal, state, local, tribal, and territorial government publication portals (.gov, .mil, .edu). Funding for and content contributors is made possible from the U.S. Congress, E-Government Act of 2002.
Crowd sourced content that is contributed to World Heritage Encyclopedia is peer reviewed and edited by our editorial staff to ensure quality scholarly research articles.
By using this site, you agree to the Terms of Use and Privacy Policy. World Heritage Encyclopedia™ is a registered trademark of the World Public Library Association, a non-profit organization.

Copyright © World Library Foundation. All rights reserved. eBooks from Project Gutenberg are sponsored by the World Library Foundation,
a 501c(4) Member's Support Non-Profit Organization, and is NOT affiliated with any governmental agency or department.