Having to navigate insolvency procedures can be a huge cause of stress for anyone involved. You’ll likely have a wide range of parties and stakeholders chasing you up, and it’s important to understand what your legal obligations are towards each of them.
Arguably the most important of these parties will be the creditors. Here, we take a closer look at creditors in the context of insolvency, to help you guide your business through these likely trying times.
What is a creditor?
Simply put, a creditor is any person or other kind of entity that is owed money by a business. The first institution that might come to mind is a bank or other formal money-lending institution, but in reality, a creditor can be any entity that has provided a product or service that hasn’t been paid.
Creditors can’t simply be ignored, no matter how difficult it might be to pay them what they owe. Working out how to keep them in the loop can be tricky, and will likely require help from other professional service providers.
Creditors in relation to insolvency
In the context of insolvency, creditors can often be ranked into a kind of order of priority. Determining this order will generally require assistance from an insolvency practitioner, from somewhere like Chamberlain & Partners.
Secured creditors
Secured creditors have their interest directly linked to a specific asset or other kind of collateral, meaning that the money they are owed should always be securable. They will typically be repaid before other kinds of creditors, and will in some cases be able to seize assets themselves in order to sell them, rather than have the process carried out by an insolvency practitioner.
Priority creditors
Priority creditors occupy a high place in the hierarchy of repayment, and are afforded legal protections to attempt to ensure repayment. These kinds of creditors might include employees owed wages, or government authorities that are owed taxes.
Unsecured creditors
Unsecured creditors are those who are still owed money for a service or product, but who don’t have a formal legal protection that places them higher in the order or repayment priority. Their repayment will depend on how much is left after secured and priority creditors have been repaid. They may receive some of what they are owed, or nothing at all, ultimately it will depend on that specific insolvency procedure.
Navigating insolvency
There isn’t a single way that you can navigate insolvency, and depending on which way you choose to go, you’ll likely repay creditors in slightly different ways. For example, if you manage to carry on running the business, you may put a long-term repayment plan in place rather than selling off assets in a single push.
Understanding what you need to do will always require assistance from an insolvency practitioner, and potentially from solicitors and accountants as well. It’s important to put a team together sooner rather than later, so that you don’t waste any time sorting things out.