In liquidation process both secured and unsecured creditors have certain rights.  Secured creditors are repaid ahead of other creditor groups. Unsecured creditors also do have certain rights during liquidation process, they can also influence proceedings and are privildged to be fully informed throughout the process.




As per section 52 of Insolvency and Bankruptcy code 2016, the secured creditor shall have two options in case of liquidation

  1. a) The secured creditor may relinquish his security interest to the liquidation estate and receive proceeds from the sale of assets by the liquidator as per section 53 (or)
  2. b) The secured creditor may realise the security interest in the manner specified in the section.


If a company fails to meet its obligations under a security interest (e.g. a charge or a mortgage), a secured creditor can appoint an independent and suitably qualified person (a receiver) to take control of and realise some or all of the secured assets (collateral), in order to repay the secured creditor’s debt. This right continues after the company goes into liquidation.



Once the cost of liquidation is covered, secured creditors lead the hierarchy for repayment. Secured creditors have the right to challenge the liquidator’s remuneration and if they feel it is too high by making a court application.

Another option available to a secured creditor is to ask the liquidator to deal with the collateral for them and account to them for the proceeds and costs of collecting and selling those assets.

Secured creditors also have the right to vote at creditors meetings to the extent of amount which company owes them that exceeds the amount they are likely to recieve from realization of collateral.

Also the secured creditor may participate in any dividend to unsecured creditors on a similar basis.




Position of unsecured creditors is below in the ladder of repayment which means that the returns may be limited

Creditor meeting are normally held at the start of the process, and at the end, to present the liquidation accounts. Creditors with 10% or more (in value) of company debt can request further meetings in the meantime.

During the initial meeting creditors agree the liquidator’s fee, and can appoint a liquidation committee consisting of between three and five members. These are usually creditors with the highest claims. Their purpose is to assist the liquidator whenever they can, and to sanction certain actions.

In some circumstances, unsecured creditors have the right to claim interest on their debt up to the liquidation date:

  • if the original contract allowed for interest
  • if interest was payable at a certain time under a written instrument, it may be claimed from the date it was due until the date of liquidation
  • if a written demand for payment had been sent, with notice that interest would be charged, it can be claimed from the date of demand to the liquidation date

Any interest claimed post-liquidation will only be paid if unsecured creditors receive full repayment from the sale of assets.

If the company is holding goods belonging to a creditor, they can claim ownership via the liquidator. Proof of ownership will need to be submitted along with the claim. The liquidator may then decide to reimburse the creditor,or allow the goods to be returned.

Unsecured creditors who have had to write off some or all of the debt are eligible to claim VAT Bad Debt Relief up to six months after the liquidation process has ended.

But what happens if a claim is rejected by the liquidator? Unsecured creditors have the right to appeal and need to contact the liquidator in the first instance to see if any compromise can be reached. If this is unsuccessful, they have 21 days in which to appeal to the court for further adjudication.

How to make a claim?

Proof of Debt forms can be obtained from the administrator or liquidator. The unsecured creditor should complete the form to provide the required information in writing, including:

  • the creditor’s name and address;
  • the total amount of the claim, including any VAT and any outstanding interest as at the date the company went into administration/liquidation;
  • details of any documents supporting the debt – it is not necessary to attach these documents with the Proof of Debt form but the administrator/liquidator may ask for these (at a later stage) to substantiate the claim; and
  • details of how and when the debt was incurred.

To whom the claim should be made

An unsecured creditor must send the completed Proof of Debt form to the administrator or liquidator, who will then proceed to consider the merits of the claim.

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