A guide, not advice. This explains how things generally work. A licensed insolvency practitioner will tell you what applies to your company or to you.
What is the order of creditors in a liquidation?
Liquidation pays out in a fixed statutory sequence - the "waterfall" - and understanding it explains most of the outcomes creditors and directors find surprising.
The waterfall, top to bottom
Fixed charge holders - paid from their charged assets first, after realisation costs.
The costs of the liquidation - the process itself, approved by creditors.
Preferential creditors - employees' arrears within limits, and (as secondary preferentials) HMRC for VAT and PAYE-type debts collected on its behalf.
The prescribed part - a capped slice of floating charge recoveries ring-fenced for unsecured creditors.
Floating charge holders - typically banks with debentures.
Unsecured creditors - suppliers, corporation tax, landlords, customers - sharing pro rata in what remains, which is why unsecured recoveries are often modest.
Shareholders - last, and only in solvent liquidations is there normally anything left.
What it means in practice
For creditors: where you sit is set by law, not by chasing hardest - though secured vs unsecured status set at contract time decides most of it.
For directors: paying favoured creditors out of sequence on the brink is precisely the preference the waterfall exists to prevent - the liquidator's job is making the order hold.
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This page is intended for general information purposes only and does not constitute financial, legal, or professional advice. Always take advice from a licensed insolvency practitioner about your specific position.