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Hello Sir, i have another question. I do not understand why the study hub and kaplan text are contradicting each other. So, According to the Kaplan text, fixed charge holders are paid first then liquidation expenses but according to the study hub liquidation expenses are paid first then the fixed charge holders.
ACCORDING TO THE KAPLAN TEXT:
Application of assets
The liquidator must repay debts in the following order:
• fixed charge-holders.
• expenses of liquidation.According to STUDY HUB :
When a company is in insolvency proceedings, the order of payment of claims is as follows:Costs of the insolvency procedure:these include the insolvency practitioner’s fees and the costs of running the business during the insolvency process.
Fixed charge holders: secured creditors may claim the assets subject to the fixed charge (or waive the charge and claim as unsecured creditors).even in the kaplan kit, Q307. I am really confused, please let me know which one you think comes first.
Ah! You have to consider the practicalities of the situation! As a fixed charge holder, it’s possible (probable?) that you hold the title document to the asset.
Along comes a liquidator and says ‘Please will you let me have that title document so that I can sell the asset?’
What are you going to say to this liquidator?
It seems to me that you have two choices:
1 Keep the document, sell the asset, calculate how much capital, interest and selling costs that you are owed. Deduct that amount from the sale proceeds and pay any surplus over to the liquidator.
2 Give the document to the liquidator (with the liquidator undertaking to pay you the outstanding amounts of capital and interest from the proceeds of subsequent sale) and let her go through the process of selling the asset. If the liquidator discovers that the charged asset will realise only an amount less than the debt + interest, I assume the liquidator will contact the secured lender and ask what the lender wants the liquidator to do
I once, many years ago, asked a liquidator ‘Who gets paid first in a liquidation?’ He answered, apparently without any careful fore thought, ‘Why the fixed charge debenture holders of course’
This was a gotcha moment! I followed up with ‘So they will be paid in advance of your own charges and costs!’
‘Oh no! Obviously I will take my costs first’
In my course notes, I believe that I rank fixed charge holders along side the liquidator in joint first place and that is where I’m resting my case. First equal.
If this came up in a question, what to do? The question might say something like ‘What’s the sequence of payments of a company’s debts in a liquidation?’ Then that would likely be fixed charge debenture holders as first recipient. Why? Because, at the date of commencement of the liquidation, the liquidator was not a payable / creditor
If the question says something like ‘Who should the liquidator pay first from the sale of a company’s assets?’ I would probably go for fixed charge debenture holders. A liquidator would likely RETAIN an amount of company’s funds to settle the liquidation costs and fees so wouldn’t actually PAY herself.
Does that help?
OK?
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