Types of Creditors in the UK

Types of Creditors in the UK #

Not all creditors are treated equally in insolvency. The type of creditor you are determines how likely you are to recover your money.

Creditor Priority in Insolvency #

When a company is liquidated, creditors are paid in the following order:

  1. Secured Creditors (Fixed Charge) – First priority
  2. Preferential Creditors – Employees, pension schemes
  3. Secured Creditors (Floating Charge) – Paid after preferential creditors
  4. Unsecured Creditors – Trade creditors, suppliers, customers
  5. Shareholders – Paid last (if anything is left)

Key takeaway: The higher you rank, the better your chances of getting paid.

1. Secured Creditors (Highest Priority) #

Secured creditors have legal rights over the debtor’s assets. There are two types:

Fixed Charge Secured Creditors #

  • Hold a fixed charge over specific assets (e.g., property, machinery, vehicles).
  • Get paid first when assets are sold.
  • Examples: Banks with mortgages, asset finance companies.

Protection tip: If lending money or selling expensive equipment, register a fixed charge at Companies House.

Floating Charge Secured Creditors #

  • Hold a floating charge over general assets (e.g., stock, receivables).
  • Paid after preferential creditors, making recovery less certain.
  • Examples: Lenders with business overdrafts, invoice financing firms.

Protection tip: Floating charges aren’t as strong as fixed charges. Consider additional security (e.g., director guarantees).

2. Preferential Creditors (Second Priority) #

These creditors are paid before floating charge and unsecured creditors.

Who Qualifies? #

  • Employees – Unpaid wages (up to £800 per employee).
  • Pension contributions – Certain unpaid pension scheme payments.
  • The Redundancy Payments Service – If they pay employees on behalf of an insolvent employer.

Protection tip: Preferential creditors are prioritized, but most business creditors do not fall into this category.

3. Unsecured Creditors (Lower Priority) #

Most suppliers, service providers, and lenders fall into this category.

Unsecured Creditors Include: #

  • Trade creditors – Suppliers owed money for goods/services.
  • Customers – People who paid for goods/services not received.
  • Business lenders – If they don’t have security over assets.

Protection tip:

  • Unsecured creditors rank low in insolvency – so take action early (e.g., issue a statutory demand).
  • Consider using retention of title (ROT) clauses – This allows you to reclaim goods if unpaid.

4. Trade Creditors (Unsecured, but with Extra Rights) #

A trade creditor is a business that supplies goods or services on credit.

  • Usually unsecured, but may include:
    • Retention of title (ROT) clauses – Allows reclaiming goods if unpaid.
    • Personal guarantees – Signed by company directors to guarantee payment.

Protection tip:

  • Always check contract terms – Include ROT clauses where possible.
  • Consider requesting deposits or staged payments for high-risk customers.

5. Crown Creditors (HMRC & Government Debts) #

Special rules apply to debts owed to HMRC and other government bodies.

  • HMRC regained preferential creditor status in 2020 (for VAT, PAYE, NIC).
  • Other government fines and penalties remain unsecured.

Protection tip:

  • If a company owes tax, HMRC can take swift enforcement action, including:
    • Issuing a winding-up petition.
    • Seizing assets without a court order (via distraint powers).
  • If a debtor prioritizes paying HMRC over you, act quickly to secure payment before their cash runs out.

Which Type of Creditor Are You? #

  • Do you have a fixed charge over assets? → Secured creditor (first priority).
  • Are you owed wages or pension payments? → Preferential creditor (second priority).
  • Do you supply goods/services on credit? → Unsecured or trade creditor (lower priority).
  • Are you HMRC? → Crown creditor (special status).

Why this matters: Knowing your creditor type helps you assess your recovery chances and take action early.

How to Improve Your Position as a Creditor #

If you’re not a secured or preferential creditor, use these strategies:

  • Use Retention of Title (ROT) Clauses – Keep ownership of goods until fully paid.
  • Obtain Personal Guarantees – Get company directors to guarantee the debt.
  • Act Quickly on Late Payments – Use statutory demands to force payment.
  • Monitor Debtor Finances – Check credit reports to spot risks early.

Taking proactive steps can protect your money and improve recovery chances.