becoming a preferential creditor rather than an unsecured creditor

fiachraX

Looking up liquidation, it seems that if a company goes bust the following is the order in which payments are made:

1. Fixed costs.
2. The costs & expenses of the liquidator.
3. In a court ordered liquidation, certain other costs (e.g. the costs of the petitioner) rank ahead of the costs of the liquidation.
4. Unpaid PRSI and other social security insurance contributions.
5. Preferential creditors.
6. Floating charge-holders.
7. Normal (unsecured) creditors.
8. Shareholders.

Hypothetically, if a private individual were to lend money to a risky business, would there be any legal mechanism (some form of contract that could be put in place?) for getting higher up the pecking order (preferential creditor status, or perhaps floating charge-holder status) rather than being simply an unsecured creditor?
It looks from the list above as though accepting shares as a thank you would be a bad idea, as it could mean the loan would be lower in priority if the company were to go bust. Or is this wrong?

Mr. Incognito

That list should be

1. Costs of the Liquidator
2. Revenue. Always. Unpaid VAT is always an issue in struggling businesses.
3. Fixed Charges
4. Floating Charges
5. Staff
6. Shareholders (rarely get anything in distressed sales)

You can ask for a secured debt over company assets but that's likley to be gobbled up by the banks. I'd look for personal guarantees usually if I was lending to a dodgy business. Make the owner personally liable.

fiachraX

Thanks!

Mr. Incognito wrote: »

You can ask for a secured debt over company assets but that's likley to be gobbled up by the banks. I'd look for personal guarantees usually if I was lending to a dodgy business. Make the owner personally liable.

I'm thinking that in a case where the company owner doesn't really have any assets outside the company, a personal guarantee won't have much value, so maybe the secured debt over company assets would be the way to go.
Would it always be the case that the bank would have first call on every company asset even if a specific item (say a piece of equipment or some intellectual property) had been explicitly named as security in an agreement with a private individual?
Would it be possible to have both (i.e. personal guarantee and secured debt)?

Samuel T. Cogley

Secured debts go in order of registration IIRC.

If this is more than about three fiddy get proper legal advice.

fiachraX

Thanks.
At the moment it's hypothetical so not even three fiddy.
Just finding out options in case a situation develops where I may be asked to give a digout.
But yeah, legal advice will be got if it comes to that!

Peregrinus

fiachraX wrote: »

Would it always be the case that the bank would have first call on every company asset even if a specific item (say a piece of equipment or some intellectual property) had been explicitly named as security in an agreement with a private individual?

As Libertarian Kant says, securities have priority in the order they are registered. If the bank registers a fixed charge in January over (say) the company's entire motor fleet, and you register a fixed charge in February over (say) a specific vehicle in that fleet, the specific vehicle is affected by both charges and the bank's charge, being first in time, will have priority. You don't get up the order of priority by being more specific or limited in your charge.

fiachraX wrote: »

Would it be possible to have both (i.e. personal guarantee and secured debt)?

Yes. You can have any number of securities for the same debt, and you can enforce whichever of them you please (or can enforce successfully, given the rights of competing creditors). You can only recover the debt once, though.

fiachraX

Great - thanks.