Preferential creditor

A preferential creditor (in some jurisdictions called a preferred creditor) is a creditor receiving a preferential right to payment upon the debtor's bankruptcy under applicable insolvency laws.

In most legal systems, some creditors are given priority over ordinary creditors, either for the whole amount of their claims or up to a certain value. In some legal systems, preferential creditors take priority over all other creditors, including creditors holding security, but more commonly the preferential creditors are only given priority over unsecured creditors. Some legal systems operate a hybrid approach; in the United Kingdom preferential creditors have priority over secured creditors whose security is in the nature of a floating charge, but creditors with fixed security take ahead of the preferential creditors generally.

Classes of preferred creditors

Creditors who are characteristically preferred creditors are:

• employees
• revenue authorities
• in some countries, environmental clean-up costs
• in some countries, tort victims^[1]

In the United Kingdom employees are preferential creditors for their wages (subject to a statutory limit), as are occupational pension schemes. The right of the Crown as a preferential creditor was removed by the Enterprise Act 2002.

Creditors, and sometimes individual assets, are also placed in classes by specific laws for specific events, such as a deposit insurance scheme triggered by a bank failure. For example, Switzerland's deposit protection has Class I (first-class), Class II (second-class) and Class III (third-class) unsecured creditors.^[2]

Admiralty claims

In admiralty law, many legal systems accord certain claims preferential status where a ship is subject to arrest. These claims vary from country to country, but commonly include:

• salvage claims
• seaman's wages
• moorage fees^[3]

See also

• Preferred stock

Footnotes

1. ^ The rationale for tort victims is that they are perceived to be "involuntary" creditors of the bankrupt and thus should not be penalised by an insolvency in the same manner as parties who voluntarily became creditors of the bankrupt.
2. ^ Einlagensicherung. Deposit Protection of Swiss Banks and Securities Dealers. Retrieved 2008-10-09 (English)
3. ^ Cost of mooring is often a preferential claim of expediency. Otherwise it would be difficult to arrange mooring for vessels which are subject to arrest.