Insolvency waterfall

Insolvency - liquidation - claims.

The priority order of claims in an insolvency or liquidation.

Broadly speaking, this priority order is:

1. Secured creditors
2. Preferential creditors
3. Fixed charge creditors
4. Floating charge creditors
5. Unsecured creditors
6. Connected unsecured creditors
7. Shareholders

Sometimes abbreviated to waterfall.

Breaching this ordering is a preference, that can be effectively reversed by an order of the court.

Examine bank account arrangements

"Geoff O’Dea, a partner at law firm Goodwin Procter... strongly recommends examining bank account arrangements, especially when you have more than one account at a single bank.

'A lot of them will have covenants in their loan agreements that require you to bank with the institution.

That was one of the issues with SVB with its clients amongst the VC, tech and life sciences community,' he says.

'For smaller companies, you might fit within the preferential rung in the insolvency waterfall, but if you're a large company, you’ll be an unsecured creditor for amounts above the [FSCS] £85,000 guarantee – so that's why you would need to examine that,' he says."

The Treasurer online - Risk Management & Strategy - Lawrie Holmes - 14 April 2023.

See also

• Covenant
• Creditors
• Financial Services Compensation Scheme (FSCS)
• Fixed charge
• Floating charge
• Insolvency
• Junior debt
• Life sciences
• Liquidation
• Preference
• Preferential
• Preferential creditor
• Secured creditor
• Security
• Senior debt
• Seniority
• Silicon Valley Bank (SVB)
• Subordinated debt
• Tech
• Unsecured debt
• Venture capital (VC)
• Waterfall
• Waterfall methodology