Bankruptcy Who Gets Paid First?
In case of a corporation liquidation, the creditors are the first to be paid but in a particular order according to the individual nation Bankruptcy code. For instance, according to the Bankruptcy Code, all the secured creditors, as well as all secured bondholders, must get the priority during liquidation. The unsecured creditors, such as the company’s suppliers, banks, and employees, receive the second priority.
The last in the line is usually the stockholders. Remember, everybody in a particular tier should be paid in full before proceeding to the next tier. It, therefore, means all the secured creditors should get paid first before the employees. Bankruptcy, also known as insolvent, is a situation in which the company is unable to pay various obligations when they are due. Liquidation, on the other hand, is a process of closing or shutting down a company and henceforth distributing to claimants all of its assets. The assets may include all cash at hand or in the bank and all equipment and physical properties. It also consists of all money proceeding the sale of such assets.
How The Company Assets
As stated earlier, all the Secured creditors and secured bondholders are the first to receive payment since their money is secured or guaranteed by a contract or by collateral, respectively. The second to receive payments are the unsecured creditors following a particular order. In this order, the entitled such as those entitled for reimbursement for payment from the company but their claims aren’t guaranteed or secured receives the payment first in this category. Such creditors may include the employees, bank lenders, any due taxes for the government, investors with unsecured bonds, and suppliers. The order or payment ensures that creditors in a particular tier are paid only when the higher tier is paid in full.
In most cases, the general creditors receive the last, and this particularly comprises the stockholders. The general creditors are also categorized into those with preferred stock and those with common stock. The creditors with preferred stock will receive payments before those with common stock. Contact us for a FREE consultation.