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ACCA Applied Skills · Corporate and Business Law (Global) · Insolvency and administration

Delta Ltd is in liquidation. It owes employees unpaid wages that qualify as preferential debts, owes Bank B under a floating charge, and owes unsecured trade creditors. The liquidator has realised floating charge assets but there is not enough to pay all. Which statement is correct?

Preferential employee claims are paid before Bank B from assets subject to the floating charge. A floating charge ranks behind preferential creditors, though ahead of unsecured creditors. Equal sharing happens only among creditors of the same rank, not between these different classes.

  1. APreferential employee claims are paid before Bank B's floating charge claim from those assetsCorrect
  2. BBank B is paid first because it holds security
  3. CEmployees and unsecured trade creditors share equally with Bank B

Explanation

Preferential debts rank ahead of floating charge holders in respect of floating charge assets. Bank B's security does not override this statutory priority, and unsecured creditors rank last. So employees are paid before Bank B, which is paid before trade creditors.

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