Got paid after a company went into liquidation - a question.
Discussion
A few weeks ago we finally got paid an outstanding invoice from a company that went into liquidation. It's a long story and I'm gobsmacked that we got paid anything but that got me thinking about my own scenario and what would happen if the unthinkable occurred:
So who gets paid what and in which order?
<Fictitous Company - all numbers are invented>
Debtors:
Unpaid invoices: £20k
Assets:
Plant £20k
Creditors:
Bank: -£20k overdraft (backed by Directors Guarantee)
Suppliers: -£25k
Customs&Excise: -£10k
PAYE: -£5k
Landlord -£5k
Rates -£2k
So when the liquidators arrive on site and start taking charge, who gets preference? My guess is that C&E are at the top of the list. But what about the overdraft? Theoretically I would put it somewhere near the bottom of priorities because the director has underwritten it with the guarantee. But would it have a higher priority?
In our case the company that went into liquidation did so because it had cashflow problems. Essentially it had £1.5million of overdue outstanding invoices and no cash to pay us (the suppliers) as it had hit its overdraft limit. I'm guessing that the liquidators just sat tight and waited for the invoices to be paid and then distributed accordingly.
So who gets paid what and in which order?
<Fictitous Company - all numbers are invented>
Debtors:
Unpaid invoices: £20k
Assets:
Plant £20k
Creditors:
Bank: -£20k overdraft (backed by Directors Guarantee)
Suppliers: -£25k
Customs&Excise: -£10k
PAYE: -£5k
Landlord -£5k
Rates -£2k
So when the liquidators arrive on site and start taking charge, who gets preference? My guess is that C&E are at the top of the list. But what about the overdraft? Theoretically I would put it somewhere near the bottom of priorities because the director has underwritten it with the guarantee. But would it have a higher priority?
In our case the company that went into liquidation did so because it had cashflow problems. Essentially it had £1.5million of overdue outstanding invoices and no cash to pay us (the suppliers) as it had hit its overdraft limit. I'm guessing that the liquidators just sat tight and waited for the invoices to be paid and then distributed accordingly.
Edited by apguy on Tuesday 23 October 17:11
The only group of creditors who get a preference are 'Preferential Creditors', mainly employees for part of their claim. (I am not be facetious, that's a definition within the insol act)
In simple terms the order of payment is:
Fixed charge secured creditors - e.g. Clearing bank secured by property
Preferential creditors - as above
Floating charge creditors - e.g. Clearing bank security over stock
Unsecured creditors - including HMRC and normal trade creditors
(not forgetting the Liquidators remuneration, of course)
A Directors guarantee is unlikely to give security as far as the Liquidator is concened - however, it is unlikely that the Bank will only have a D's G - they'll probably have this in addition to a fixed & floating charge over the company assets.
You've said the company went into liquidation, as opposed adminsitration. Therefore it is unlikely the business was traded for any period (and therefore unlikely it was sold as a going concern). The liquidator is most likely to have sold the assets piecemeal and, as you say, collected the debtors as best as possible in that scenario.
There is a prescribed part of floating charge assets that may be relevant, but that's just getting into detail!
In simple terms the order of payment is:
Fixed charge secured creditors - e.g. Clearing bank secured by property
Preferential creditors - as above
Floating charge creditors - e.g. Clearing bank security over stock
Unsecured creditors - including HMRC and normal trade creditors
(not forgetting the Liquidators remuneration, of course)
A Directors guarantee is unlikely to give security as far as the Liquidator is concened - however, it is unlikely that the Bank will only have a D's G - they'll probably have this in addition to a fixed & floating charge over the company assets.
You've said the company went into liquidation, as opposed adminsitration. Therefore it is unlikely the business was traded for any period (and therefore unlikely it was sold as a going concern). The liquidator is most likely to have sold the assets piecemeal and, as you say, collected the debtors as best as possible in that scenario.
There is a prescribed part of floating charge assets that may be relevant, but that's just getting into detail!
Thanks for the comments.
In the case of the company that paid us after liquidation:
It was called ARMs and it was an accident management company that handled all of the claims on behalf of Endsleigh insurance. This was about 80% of their business.
They instructed repairers (like us) to repair the clients vehicle and paid us direct. They would then invoice Endsleigh for the amount + % commission.
When Endsleigh ended the contract and subsequently slowed down outstanding invoice payment to ARMs then the end was inevitable. It never went into administration as a sale. or continued business, was unlikely. But it was genuinely sitting on £1.5m of undisputed invoices.
We got paid 2 years after the collapse. And in fact we got 100% of money owed. It was a good result.
Thanks for pointing out the order of creditors.
In the case of the company that paid us after liquidation:
It was called ARMs and it was an accident management company that handled all of the claims on behalf of Endsleigh insurance. This was about 80% of their business.
They instructed repairers (like us) to repair the clients vehicle and paid us direct. They would then invoice Endsleigh for the amount + % commission.
When Endsleigh ended the contract and subsequently slowed down outstanding invoice payment to ARMs then the end was inevitable. It never went into administration as a sale. or continued business, was unlikely. But it was genuinely sitting on £1.5m of undisputed invoices.
We got paid 2 years after the collapse. And in fact we got 100% of money owed. It was a good result.
Thanks for pointing out the order of creditors.
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