Section A

Which of the following debts ranks highest in the statutory order of distribution during a liquidation?

Answer options:

Preferential debts (e.g., employee wages).

Unsecured creditors.

The expenses of the liquidation.

Floating charge holders.

How to approach this question

Recall the strict statutory hierarchy for paying out funds in a liquidation.

Full Answer

C.The expenses of the liquidation.✓ Correct

The statutory order of distribution is: 1) Fixed charge holders, 2) Expenses of the liquidation, 3) Preferential creditors (e.g., HMRC, employee wages), 4) Prescribed part fund, 5) Floating charge holders, 6) Unsecured creditors, 7) Shareholders.

Common mistakes

Assuming employees or HMRC get paid before the costs of the liquidation itself.

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Practice the full ACCA LW — Corporate and Business Law Practice Exam 6

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