Position of creditors

Forms of security

What are the main forms of security over moveable and immoveable property and how are they given legal effect?

Floating charge The main form of security over the movable business assets of a company is a floating charge (sometimes called a business mortgage). A floating charge is created by issuing floating charge notes, registering them with the trade register and transferring them to the possession of the secured creditor. A floating charge covers movable assets that are not subject to a separate pledge or mortgage.

Fixed charge Aircraft, vessels and vehicles may be subject to a fixed charge, which is created by registering the charge in the relevant register and transferring the certificate of charge to the secured creditor.

The main form of security over immoveable property is a mortgage.

Ranking of creditors

How are creditors’ claims ranked in insolvency proceedings?

Creditors’ claims are ranked in the following order:

  • Secured creditors – creditors whose claims are secured by specific asset security must be satisfied in full up to the value of the security asset in question (although enforcement costs are first deducted from the sales proceeds). Therefore, secured creditors have the highest priority.
  • Fees and financing obtained during company administration proceedings – the administrator’s fees and claims that have arisen in the course of company administration proceedings enjoy special priority in bankruptcy proceedings under certain circumstances. The liquidator’s fees also enjoy special priority.
  • Floating charge holders – floating charge holders are entitled to 50% of the net proceeds of the liquidated assets covered by floating charge (enforcement costs are first deducted from the sales proceeds). Floating charge holders that are not fully satisfied from such proceeds are treated as unsecured creditors for their remaining claim. The balance of liquidation proceeds is distributed among unsecured creditors.
  • Ordinary unsecured creditors – ordinary unsecured creditors rank pari passu and pro rata. Secured creditors whose security is not sufficient to satisfy their entire claim are treated as unsecured creditors for their remaining claim.
  • Subordinated creditors – subordinated creditors, such as creditors whose claims are contractually subordinated and subordinated bondholders, have the lowest priority.

Can this ranking be amended in any way?

Intercreditor agreements are commonly used as a means of agreeing on the waterfall among creditors.

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