ACCA Applied Skills · Corporate and Business Law (Global) · Loan capital
Delta Co is wound up with insufficient assets to pay everyone. It owes unsecured debenture holders, has ordinary shareholders, and owes trade creditors who are also unsecured. Which statement correctly states the ranking of the unsecured debenture holders relative to the others?
Unsecured debenture holders rank equally with trade creditors and ahead of ordinary shareholders. They are simply unsecured creditors, so a written debenture gives no priority without security, while shareholders are paid only from any surplus after all creditors.
- AThey rank ahead of trade creditors because they hold a written debenture
- BThey rank equally with trade creditors and ahead of ordinary shareholdersCorrect
- CThey rank equally with ordinary shareholders
- DThey rank behind ordinary shareholders as their loan is capital
Explanation
Unsecured debenture holders are ordinary unsecured creditors and share pari passu with trade creditors. Shareholders are paid last, only from any surplus after all creditors. A written document does not by itself create priority; security would.
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