Secured vs unsecured creditors in administration

A secured creditor holds a legal interest — a fixed or floating charge, mortgage, pledge, or lien — over specific company assets. That interest gives them priority to be paid from those assets on default. An unsecured creditor has only a contractual right to payment; they rank behind secured creditors in the statutory waterfall and typically receive pence in the pound in an insolvent process.

A fixed charge attaches to a specific, identifiable asset (real property, plant, IP, book debts under certain conditions). The chargeholder controls disposal — the company cannot sell the charged asset without consent. On insolvency, the fixed-charge holder is paid first from the proceeds of that asset, ahead of everyone except the direct expenses of realising it.

A floating charge hovers over a shifting class of assets — stock, receivables, cash — that the company uses in the ordinary course of business. The charge 'crystallises' (becomes fixed) on default or insolvency. Floating charges rank behind fixed charges, administration expenses and preferential creditors, and are also subject to the prescribed part carve-out for unsecured creditors.

The prescribed part is a slice of floating-charge realisations set aside for unsecured creditors under section 176A IA 1986. Since 6 April 2020 it is 50% of the first £10,000 of net floating-charge property plus 20% of the excess, capped at £800,000 (raised from £600,000 in 2020). It exists so that unsecured creditors are not entirely wiped out by a floating charge covering all a company's assets.

Neither, exactly. Since 1 December 2020, HMRC is a 'secondary preferential creditor' for VAT, PAYE, employee NIC and CIS deductions — ahead of floating-charge holders and the prescribed part, but behind fixed-charge holders, administration expenses and the first-tier employee preferentials. Corporation tax remains unsecured. This change materially reduced recoveries for banks with floating-only security.

Yes, if the ROT clause is validly drafted. A simple ROT retains legal title in identifiable stock until paid for; that stock never becomes company property and is not subject to the floating charge. Extended ROT (over proceeds, mixed goods, etc.) is more fragile and often fails against a well-drafted floating charge, especially where goods have been sold on or processed.

Section 245 IA 1986 makes them void unless they secured 'new money' — cash actually advanced to the company at or after creation. The lookback is 12 months for unconnected chargeholders, two years for connected persons. This prevents a director-shareholder from taking a floating charge to elevate themselves above unsecured creditors on the eve of insolvency.

Modern lending documentation combines fixed charges over specific assets (typically book debts, IP, property) with a floating charge over 'all other assets' as a safety net. The bank appoints administrators using its Schedule B1 para 14 power under a qualifying floating charge, which typically also grants control over the appointment process.

Rarely. Most trade suppliers rely on ROT clauses, credit insurance and payment terms. Larger suppliers (particularly to distressed sectors) sometimes take a Personal Guarantee from directors — see our sibling guide on personal guarantees — or negotiate a security assignment over specific contracts.

It varies wildly. Insolvency Service data shows unsecured recoveries in administrations averaging 4–10p in the pound, with wide dispersion. Cases with strong asset backing, no floating charge, or where set-off applies can return 30–50p. Cases with heavy secured debt, preferential HMRC, and floating-only realisations often return zero to unsecured creditors — apart from the statutory prescribed part.