preferential debt

Preferential debts can be a set amount of employee wages.

The receivers realised the assets, paid preferential debts, and made interim distributions to Ofasec.

Section 32 established the first statutory regime for preferential debts in bankruptcy, between local rates, taxes, wages and salaries of clerks, servants, labourers and workers.

The basic duty of the receiver was to realise value for the floating charge holder, although all preferential debts, or those with priority, would have to be paid.

All debts for the purpose of entitlement to interest under this section rank equally, ie preferential debts do not have preferential rights to interest.

The preferential debts of the employees are set out in Schedule 6 to the Insolvency Act 1986 and include four months' wages and accrued holiday remuneration.

In the case of a floating charge the relevant date for quantifying the preferential debts is the date of the appointment of the receiver by the debentureholders.

Hence it is provided that on winding up, a voluntary arrangement, or appointment of an administrative receiver under a floating charge, preferential debts, which include certain payments to employees, will have priority over the claims of ordinary creditors and shall similarly have priority over any floating charge.

If a landlord has distrained on the goods of the bankrupt in the three month period before the bankruptcy order, the proceeds of that distraint are charged for the benefit of the bankrupt's estate with the preferential debts to the extent that the estate is not sufficient to meet them (s347(3)).

It is important to note that the preferential creditors are given priority where a receiver is appointed with respect to a charge 'which, as created, was a floating charge'; thus the fact that the charge has crystallised at the time a receiver is appointed does not result in preferential debts being denied their statutory priority.