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

Orval Ltd is in compulsory liquidation. Its assets realise 300,000 after costs. It owes 100,000 to a bank secured by a fixed charge over a building sold for exactly 100,000, 80,000 to preferential creditors, and 400,000 to unsecured creditors. The 300,000 includes the 100,000 building proceeds. Ignoring any prescribed part or other costs, how much is available to the unsecured creditors after the fixed charge holder and preferential creditors are paid?

120,000 is available to unsecured creditors. The fixed charge holder takes the 100,000 building proceeds, leaving 200,000, and preferential creditors then take 80,000, leaving 120,000. Unsecured creditors share this remainder.

  1. A120,000Correct
  2. B220,000
  3. C20,000

Explanation

The fixed charge holder takes the 100,000 building proceeds first, leaving 200,000. Preferential creditors are paid 80,000 next, leaving 120,000 for unsecured creditors. The figure 220,000 wrongly ignores the preferential creditors, while 20,000 wrongly deducts the secured debt twice.

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