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as per the OT lecture notes liquidators are paid first however as per the Kaplan material and other notes it says secured creditors with fixed charges are paid first(as per the OT notes this is 2nd)
I believe that, in the accompanying lecture, I actually place the liquidator and the fixed charge secured creditors as joint first.
It’s a practical issue and I did actually come across it twice in practice.
Picture the scene for yourself. There aren’t enough assets in the company being liquidated to pay off the fixed charge creditors in full. So what’s a liquidator to do? “Here you are you lucky fixed charge creditors. Please accept all the money that I have been able to recover from sale of the company’s assets. Now you all go away and enjoy your payout. Meanwhile, after I’ve done all the work involved in realising the sale of those assets, I’m expected to get zilch for my efforts?”
Ask yourself, why would a liquidator do all the work involved in a liquidation only to be faced with a zero return for those efforts?
On the first occasion that I came across it, a client of mine was facing liquidation (I had only been appointed as the company auditor the day before and I immediately persuaded them that to carry on would count as wrongful trading!)
I called the liquidation partner at the firm where I trained and set out the issue – ie there would be no assets to sell and therefore no money available to pay a liquidator. Mr Brierley actually thanked me for putting the work his way even knowing that there would be nothing in it for him nor the firm.
The second occasion was where I was in court taking legal action against my former business partner. I posed the same question to my forensic accountant, a qualified insolvency practitioner.
He came up with the same answer – “Why the creditors secured by fixed charge, of course.”
“OK” says I. “So if there aren’t enough assets to pay the secured creditors in full, does that therefore mean that the liquidator gets nothing?”
“Oh, NO!” says my forensic accountant. “Of course the liquidator would be paid”
Now, you tell me – who gets paid first out of the realised assets? I’m happy to leave them as equal firsts but, if really pushed to name just one, I believe that I would say that the liquidator will always rank number one, unless they happen to be called Mr Brierley, the insolvency partner at a large firm in Manchester.
OK?
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