Order of payment from floating charge realisations in a liquidation (IA 1986 ss.175, 176A)

Under s.175(1) IA 1986, preferential debts are paid in priority to all other debts after the expenses of the winding up. Under s.175(2)(b), so far as the assets available to general creditors are insufficient, preferential debts have priority over the holder of a floating charge and are paid out of property subject to that charge. The floating charge proceeds are therefore applied first to the winding-up expenses and then to the preferential creditors. Next, s.176A(2) requires the liquidator to make a prescribed part of the company's net property available for unsecured debts. The liquidator must not distribute that part to the floating charge holder, except in so far as it exceeds what the unsecured debts need. Net property means the property that would otherwise be available to the floating charge holder (s.176A(6)). Only after the prescribed part is set aside does the bank receive the balance under its floating charge. Any surplus then goes to unsecured creditors and finally to shareholders.

Why B is wrong: A floating charge holder is postponed to the expenses and to preferential debts (s.175(1) and (2)(b)).

Why C is wrong: Expenses of the winding up are paid before preferential debts, and both come ahead of the floating charge holder.

Why D is wrong: Preferential debts rank ahead of the floating charge holder under s.175(2)(b), and the prescribed part is set aside before the chargeholder is paid.

Why E is wrong: The prescribed part must be set aside from net property before the floating charge holder is paid, not after (s.176A(2)).