Insolvency Act 1986, section 328

Priority of debts

Part IX Bankruptcy

(1)F839In the distribution of the bankrupt’s estate, his preferential debts ... shall be paid in priority to other debts.

[F840 (1A)Ordinary preferential debts rank equally among themselves after the expenses of the bankruptcy and shall be paid in full, unless the bankrupt’s estate is insufficient to meet them, in which case they abate in equal proportions between themselves.

(1B)Secondary preferential debts rank equally among themselves after the ordinary preferential debts and shall be paid in full, unless the bankrupt’s estate is insufficient to meet them, in which case they abate in equal proportions between themselves.F840]

F841(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3)Debts which are neither preferential debts nor debts to which the next section applies also rank equally between themselves and, after the preferential debts, shall be paid in full unless the bankrupt’s estate is insufficient for meeting them, in which case they abate in equal proportions between themselves.

[F842 (3A)If the bankrupt is a relevant financial institution, subsection (3) does not apply but—

(a)the bankrupt’s ordinary non-preferential debts shall be paid in priority to the bankrupt’s secondary non-preferential debts,

(b)the bankrupt’s ordinary non-preferential debts rank equally among themselves after the secondary preferential debts and shall be paid in full, unless the bankrupt’s estate is insufficient to meet them, in which case they abate in equal proportions,

(c)the bankrupt’s secondary non-preferential debts shall be paid in priority to the bankrupt’s tertiary non-preferential debts, and

(d)the bankrupt’s secondary non-preferential debts rank equally among themselves after the ordinary non-preferential debts and shall be paid in full, unless the bankrupt’s estate is insufficient to meet them, in which case they abate in equal proportions.

See section 387A for definitions relevant to this subsection.F842]

(4)Any surplus remaining after the payment of the debts [F843—

(a)where subsection (3) applies, that are preferential or rank equally under that subsection, or

(b)where subsection (3A) applies, that are preferential or are referred to in that subsection,F843]

shall be applied in paying interest on those debts in respect of the periods during which they have been outstanding since the commencement of the bankruptcy; and interest on preferential debts ranks equally with interest on debts other than preferential debts.

(5)The rate of interest payable under subsection (4) in respect of any debt is whichever is the greater of the following—

(a)M23the rate specified in section 17 of the Judgments Act 1838 at the commencement of the bankruptcy, and

(b)the rate applicable to that debt apart from the bankruptcy.

(6)This section and the next are without prejudice to any provision of this Act or any other Act under which the payment of any debt or the making of any other payment is, in the event of bankruptcy, to have a particular priority or to be postponed.

[F844 (7) In this section “preferential debts”, “ordinary preferential debts” and “secondary preferential debts” each has the meaning given in section 386 in Part 12. F844]

Definitions used in section 328 6

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
relevant financial institution

(1) In this Act “relevant financial institution” means any of the following—

(a)a credit institution,

(b)an investment firm,

(c)a financial holding company,

(d)a mixed financial holding company,

(da)an investment holding company,

(e)a financial institution which is—

(i)a subsidiary of an entity referred to in paragraphs (a) to (da), and

(ii)covered by the supervision of that entity on a consolidated basis by the Financial Conduct Authority in accordance with Part 9C rules or by the Prudential Regulation Authority in accordance with Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms or CRR rules, or,

(f)a mixed-activity holding company.

Defined in s.387A(1) · see it in the full Act
ordinary non-preferential debts

(a) “ordinary non-preferential debts” means non-preferential debts which are neither secondary non-preferential debts nor tertiary non-preferential debts;

Defined in s.387A(3) · see it in the full Act
secondary non-preferential debts

(b) “secondary non-preferential debts” means non-preferential debts issued under an instrument where—

(i)the original contractual maturity of the instrument is of at least one year,

(ii)the instrument is not a derivative and contains no embedded derivative, and

(iii)the relevant contractual documentation and where applicable the prospectus related to the issue of the debts explain the priority of the debts under this Act, and

(c) “tertiary non-preferential debts” means all subordinated debts, including (but not limited to) debts under Common Equity Tier 1 instruments, Additional Tier 1 instruments and Tier 2 instruments (all within the meaning of Part 1 of the Banking Act 2009 ).

Defined in s.387A(3) · see it in the full Act
tertiary non-preferential debts

(c) “tertiary non-preferential debts” means all subordinated debts, including (but not limited to) debts under Common Equity Tier 1 instruments, Additional Tier 1 instruments and Tier 2 instruments (all within the meaning of Part 1 of the Banking Act 2009 ).

Defined in s.387A(3) · see it in the full Act

Cases considering section 328 10

Ashleigh Fletcher & Anor v Vibhutiben Desai

[2026] EWHC 728 (Ch) · 27 March 2026

Applies the statutory pari passu rule to ordinary unsecured bankruptcy debts. The respondent could not obtain a better recovery than other ordinary unsecured creditors. (see para [37])

Cooke v Dunbar Assets Plc

[2016] EWHC 1888 (Ch) · 29 July 2016Limits

Confirms the statutory priority of preferential debts after the expenses of the bankruptcy. The court held that treating the same appeal costs as both expenses and provable debts would be inconsistent with this scheme. (see paras [13], [49]-[50])

Lockston Group Inc v Wood

[2015] EWHC 2962 (Ch) · 27 October 2015

Applied so that statutory interest on proved debts runs from the date of death and is payable only from any surplus after payment of the proved debts. This confirms that the underlying debts are quantified at death. (see paras [20], [36], [55], [63], [67]) Applied as part of the statutory-interest regime, with the relevant date modified to death rather than the insolvency administration order. (see paras [20], [36])

What each judgment says about section 328 is in the case-law panel in the full Act.

Amendments and notes

14 notes from legislation.gov.uk

Amendments

  1. F839Words in s. 328(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), 7(2) (with art. 3)
  2. F840S. 328(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), 7(3) (with art. 3)
  3. F841S. 328(2) 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), 7(4) (with art. 3)
  4. F842S. 328(3A) inserted (19.12.2018) by The Banks and Building Societies (Priorities on Insolvency) Order 2018 (S.I. 2018/1244), arts. 1(2), 8(2) (with art. 3)
  5. F843S. 328(4)(a)(b) substituted for words (19.12.2018) by The Banks and Building Societies (Priorities on Insolvency) Order 2018 (S.I. 2018/1244), arts. 1(2), 8(3) (with art. 3)
  6. F844S. 328(7) inserted (1.1.2015) by The Banks and Building Societies (Depositor Preference and Priorities) Order 2014 (S.I. 2014/3486), arts. 1(2), 7(5) (with art. 3)

Modifications

  1. C1056S. 328 applied (with modifications) by S.I. 1986/1999, art. 3, Sch. 1 Pt. II
  2. C1057S. 328 excluded (10.8.2005) by The Insurers (Reorganisation and Winding Up) Regulations 2004 (S.I. 2004/353), reg. 20 (as amended (10.8.2005) by S.I. 2005/1998, regs. 2(3), 40(1)-(5))
  3. C1058S. 328 modified (1.12.1994) by S.I. 1994/2421, art. 11(2)(3), Sch. 7 para. 21 (as amended (8.12.2017) by The Insolvency (Miscellaneous Amendments) Regulations 2017 (S.I. 2017/1119), reg. 1(1), Sch. 2 para. 7(4); and (19.12.2018) by The Banks and Building Societies (Priorities on Insolvency) Order 2018 (S.I. 2018/1244), arts. 1(2), 21 (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(5))
  4. C1059S. 328 modified (28.12.2020 until IP completion day when the amending provision ceases to have effect in accordance with reg. 1(4) of the amending S.I.) by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(4), 112 (with reg. 108)
  5. C1060S. 328(1)-(3)(6) modified (1.12.1994) by S.I. 1994/2421, art. 8, Sch. 4 Pt. II para. 23
  6. C1061S. 328(1)(2) applied (11.12.1999) by S.I. 1999/2979, reg. 14(5)
  7. C1062S. 328(4)(5) applied (with modifications) (1.12.1994) by S.I. 1994/2421, arts. 8(3)(9), 10(6), Sch. 4 Pt. II para. 24

Marginal citations

  1. M231838 c. 110.