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

Orlin Ltd's liquidator has realised assets and must distribute them. Assets are subject to a fixed charge held by Bank A, and there are also employees' preferential claims, unsecured trade creditors and shareholders. Which statement about the order of distribution is correct?

The fixed charge holder is paid first from the charged asset, other creditors follow in their statutory order, and shareholders rank last, receiving something only if a surplus remains after all creditors are paid in full. Shareholders never rank ahead of creditors.

  1. AShareholders are repaid before unsecured trade creditors because they contributed capital
  2. BFixed charge holders look to their secured asset first, and shareholders receive any surplus only after all creditors have been paid in fullCorrect
  3. CUnsecured trade creditors rank ahead of the holder of a fixed charge over the charged asset
  4. DPreferential creditors and shareholders share any remaining assets equally

Explanation

A fixed charge holder is paid from the proceeds of the charged asset ahead of other creditors. Preferential and then unsecured creditors are paid from the remaining assets in their statutory order. Shareholders rank last and receive only a surplus once all debts and costs are met. The other options reverse or blur this ranking.

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