Waterfall of payments in bankruptcy—the position under The Insolvency (England and Wales) Rules 2016
Produced in partnership with South Square Chambers
Waterfall of payments in bankruptcy—the position under The Insolvency (England and Wales) Rules 2016

The following Restructuring & Insolvency practice note produced in partnership with South Square Chambers provides comprehensive and up to date legal information covering:

  • Waterfall of payments in bankruptcy—the position under The Insolvency (England and Wales) Rules 2016
  • Preferential creditors
  • Unsecured creditors
  • Surplus

After satisfying the claims of secured creditors, the trustee in bankruptcy (trustee) must distribute the remaining assets in accordance with the prescribed order of payment (section 328 of the Insolvency Act 1986 (IA 1986)).

First, the trustee must discharge the costs and expenses of the bankruptcy. This is dealt with in Practice Note: What counts as an expense?—the position under the Insolvency (England and Wales) Rules 2016.

Preferential creditors

Next, the trustee must discharge debts with pre-preferential and preferential priority. The former category is provided for by IA 1986, s 328(6). This states that the general rules on priority in the IA 1986 are without prejudice to any provision in the IA 1986, or any other statute under which the payment of any debt is given a particular priority. Examples include a claim for the trustee’s expenses under a deed of arrangement which has been avoided by the debtor bankruptcy (see the Deeds of Arrangement Act 1914, s 21 (DAA 1914)). The latter category, provided for in IA 1986, Sch 6, includes contributions to occupational pension schemes and remuneration due to employees.

Preferential debts are divided into ordinary preferential debts and secondary preferential debts, with the former being paid in priority to the latter. Where the relevant date of the bankruptcy falls on or after 1 D

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