IVA Glossary
P
Preferential Creditor
The term "preferential creditor" is defined in the document entitled "The Insolvency Act 1986" which is a statutory legislation constituting a legal platform in the UK for all kinds of matters related to personal and corporate default. The Schedule 6 of this document defines this particular category of creditors as those who have priority during the fund distribution. The distribution of funds is lead by liquidators, administrative receivers or trustees within a bankruptcy.
Insolvency laws generally define creditors who receive a preferential payment right in case of a debtor's bankruptcy. This is the case in most legal systems, where there is a clear distinction between prioritized and ordinary creditors. Priority might be given for the entire amount of a creditor's claims or only up to a certain amount.
There are some legal systems in which preferential creditors have priority over all the other creditors, even over creditors who hold security. But generally speaking, this priority only refers to rights over unsecured creditors.
In the United Kingdom there is a hybrid system according to which preferential creditors do have priority over secured creditors, but only if the security of the secured lenders is in the nature of a short-term and unfixed (or in short, floating) charge. Obviously, creditors who have fixed security will have priority over preferential creditors in the UK as well. Some examples to preferential creditors in the UK could be employees (for their wages) as well as the occupational pension schemes.
Insolvency laws generally define creditors who receive a preferential payment right in case of a debtor's bankruptcy. This is the case in most legal systems, where there is a clear distinction between prioritized and ordinary creditors. Priority might be given for the entire amount of a creditor's claims or only up to a certain amount.
There are some legal systems in which preferential creditors have priority over all the other creditors, even over creditors who hold security. But generally speaking, this priority only refers to rights over unsecured creditors.
In the United Kingdom there is a hybrid system according to which preferential creditors do have priority over secured creditors, but only if the security of the secured lenders is in the nature of a short-term and unfixed (or in short, floating) charge. Obviously, creditors who have fixed security will have priority over preferential creditors in the UK as well. Some examples to preferential creditors in the UK could be employees (for their wages) as well as the occupational pension schemes.
