Insolvency Act 1986, section 175

Preferential debts (general provision)

Part IV Winding Up of Companies Registered under the Companies Acts

(1)F373In a winding up the company’s preferential debts ... shall be paid in priority to all other debts [F374after the payment of—

(a)any liabilities to which section 174A applies, and

(b)expenses of the winding up.F374]

[F375 (1A)Ordinary preferential debts rank equally among themselves F376... and shall be paid in full, unless the assets are insufficient to meet them, in which case they abate in equal proportions.

(1B)Secondary preferential debts rank equally among themselves after the ordinary preferential debts and shall be paid in full, unless the assets are insufficient to meet them, in which case they abate in equal proportions.F375]

(2)Preferential debts—

F377(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b)so far as the assets of the company available for payment of general creditors are insufficient to meet them, have priority over the claims of holders of debentures secured by, or holders of, any floating charge created by the company, and shall be paid accordingly out of any property comprised in or subject to that charge.

[F378 (3) In this section “preferential debts”, “ordinary preferential debts” and “secondary preferential debts” each has the meaning given in section 386 in Part 12. F378]

Definitions used in section 175 3

the company

2 Section 233B does not apply in relation to a contract for the supply of goods or services to a company (“the company”) where any of paragraphs 3 to 11 applies.

Defined in Sch.4ZZA para.2 · see it in the full Act
ordinary preferential debts

(1A) A reference in this Act to the “ordinary preferential debts” of a company or an individual is to the preferential debts listed in any of paragraphs 8 to 15B of Schedule 6 to this Act.

Defined in s.386(1A) · see it in the full Act
secondary preferential debts

(1B) A reference in this Act to the “secondary preferential debts” of a company or an individual is to the preferential debts listed in paragraph 15BA , 15BB or 15D of Schedule 6 to this Act.

Defined in s.386(1B) · see it in the full Act

Cases considering section 175 27

National Westminster Bank plc (Respondents) v. Spectrum Plus Limited and others and others (Appellants)

[2005] UKHL 41 · 30 June 2005

The section gives preferential creditors priority over assets subject to a floating charge in a winding up. It applied because Spectrum’s charge was floating. The provision gives preferential debts priority over claims secured by a floating charge when the assets available to general creditors are insufficient. It entitled Spectrum’s preferential creditors to priority over the bank in the book-debt proceeds.

Buchler and another (as joint liquidators of Leyland Daf Limited) (Respondents) v. Talbot and another (as joint administrative receivers of Leyland Daf Limited) and Stichting Ofasec (Appellants) and others

[2004] UKHL 9 · 4 March 2004Interprets

In a winding up, preferential debts have priority over other debts within the company’s free-assets fund. The provision does not affect assets which beneficially belong to a secured charge-holder. Preferential debts rank after the expenses of the winding up. That priority concerns the company’s free assets and does not make those expenses payable from assets subject to a floating charge. Where free assets are insufficient, preferential debts have priority over a floating charge and are payable from property subject to it. The provision authorises that limited inroad into the charge-holder’s proprietary fund, but does not authorise payment of general liquidation costs from it.

Jason Daniel Baker & Anor. v The Financial Conduct Authroity

[2022] EWCA Civ 302 · 9 March 2022Limits

The statutory interest of electronic money holders in the regulation 24 asset pool operates before and outside the ordinary insolvency waterfall. Alternatively, regulation 24 can amend or disapply inconsistent priority rules (see paras [94]–[105]).

7 more judgments, and what each says about section 175, are in the case-law panel in the full Act.

Amendments and notes

13 notes from legislation.gov.uk

Amendments

  1. F373Words in s. 175(1) omitted (1.1.2015) by virtue of The Banks and Building Societies (Depositor Preference and Priorities) Order 2014 (S.I. 2014/3486), arts. 1(2), 5(2) (with art. 3)
  2. F374S. 175(1)(a)(b) and words inserted (26.6.2020) by Corporate Insolvency and Governance Act 2020 (c. 12), s. 49(1), Sch. 3 para. 14(2) (with ss. 2(2), 5(2))
  3. F375S. 175(1A)(1B) inserted (1.1.2015) by The Banks and Building Societies (Depositor Preference and Priorities) Order 2014 (S.I. 2014/3486), arts. 1(2), 5(3) (with art. 3)
  4. F376Words in s. 175(1A) omitted (26.6.2020) by virtue of Corporate Insolvency and Governance Act 2020 (c. 12), s. 49(1), Sch. 3 para. 14(3) (with ss. 2(2), 5(2))
  5. F377S. 175(2)(a) omitted (1.1.2015) by virtue of The Banks and Building Societies (Depositor Preference and Priorities) Order 2014 (S.I. 2014/3486), arts. 1(2), 5(4) (with art. 3)
  6. F378S. 175(3) inserted (1.1.2015) by The Banks and Building Societies (Depositor Preference and Priorities) Order 2014 (S.I. 2014/3486), arts. 1(2), 5(5) (with art. 3)

Modifications

  1. C496S. 175 excluded (6.3.2008) by The Regulated Covered Bonds Regulations 2008 (S.I. 2008/346), reg. 46, Sch. para. 2(4)
  2. C497S. 175 applied (with modifications) (11.12.1999) by The Financial Market and Insolvency (Settlement Finality) Regulations 1999 (S.I. 1999/2979), reg. 14(5)(a)(i) (as substituted (1.10.2009) by The Financial Markets and Insolvency (Settlement Finality) (Amendment) Regulations 2009 (S.I. 2009/1972), reg. 4(d)(ii))
  3. C498S. 175 excluded (20.4.2003) by The Insurers (Reorganisation and Winding Up) Regulations 2003 (S.I. 2003/1102), reg. 20 (with reg. 3)
  4. C499S. 175 applied (with modifications) (17.2.2009 for certain purposes, otherwise 21.2.2009) by Banking Act 2009 (c. 1), ss. 103, 263(1)(2) (with s. 247); S.I. 2009/296, arts. 2, 3, Sch. para. 2
  5. C500S. 175 excluded by S.I. 2003/3226, reg. 10(2A) (as inserted (6.4.2011) by The Financial Markets and Insolvency (Settlement Finality and Financial Collateral Arrangements) (Amendment) Regulations 2010 (S.I. 2010/2993), reg. 4(8)(a))
  6. C501S. 175 applied (20.4.2003) by The Insurers (Reorganisation and Winding Up) Regulations 2003 (S.I. 2003/1102), reg. 27(2) (with reg. 3)
  7. C502S. 175 applied (with modifications) (1.12.1994) by S.I. 1994/2421, art. 8(3)(9), Sch. 4 Pt. II para. 23 (as amended (E.W.) (8.12.2017) by The Insolvency (Miscellaneous Amendments) Regulations 2017 (S.I. 2017/1119), reg. 1(1), Sch. 2 para. 5; and (19.12.2018) by The Banks and Building Societies (Priorities on Insolvency) Order 2018 (S.I. 2018/1244), arts. 1(2), 20 (with art. 3); and (28.12.2020) (temp.) by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(4), 121(4))