ExpertMedium1 markMultiple Choice
ACCA · Question 42 · Insolvency law
In a corporate liquidation, which of the following debts is paid first out of the realized assets (after the expenses of the liquidation itself)?
In a corporate liquidation, which of the following debts is paid first out of the realized assets (after the expenses of the liquidation itself)?
Answer options:
A.
Unsecured creditors.
B.
Preferential debts (e.g., employee wages).
C.
Fixed charge holders.
D.
Floating charge holders.
How to approach this question
Recall the statutory order of distribution in insolvency. Fixed charges take priority over the specific asset.
Full Answer
C.Fixed charge holders.✓ Correct
The statutory order of priority in liquidation is: 1) Costs of realizing fixed charge assets, 2) Fixed charge holders, 3) Expenses of the liquidation, 4) Preferential creditors (e.g., employees, HMRC), 5) Floating charge holders, 6) Unsecured creditors, 7) Shareholders.
Common mistakes
Thinking preferential debts are paid before fixed charges. Preferential debts only take priority over floating charges and unsecured creditors.
Practice the full ACCA LW — Corporate and Business Law Practice Exam 2
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