Ranking of creditors

Distributing money through ranking of creditors

The primary task of the receiver is, of course, to realize as much assets as possible from which the creditors can be paid. But how is the money divided among them? In principle, there are six different types of creditors. They will be paid in descending order. This is why we speak of a “ranking system” of creditors. The six types are:

  1. Estate creditors
  2. Creditors with a right of pledge
  3. Particularly privileged creditors
  4. Social liabilities
  5. General privileged creditors
  6. Ordinary creditors

Ranking system of creditors: 6 ranks

Estate creditors

Estate debts are debts that come first in the ranking system of creditors. They arise after the declaration of bankruptcy and are inherent to the bankruptcy procedure. This includes court costs, the receiver’s fee, and the costs the receiver must incur to settle the bankruptcy.

Creditors with a right of pledge

Second in the ranking system of creditors are those who have a certain right of pledge. These are creditors who can claim a specific property (or its proceeds) by virtue of a certain right, with priority over all other creditors. For example, think of a bank that provides a loan secured by a mortgage. The bank will then be paid with priority from the proceeds of the sale of the property. Such security interests must always be registered at a mortgage office to be opposable to third parties. (In other words: so that you can rely on it for the receiver as a creditor.) It is important that you attach a copy of that registration to your declaration.

Particularly privileged creditors

Third in the ranking system of creditors are the particularly privileged creditors. They also have a claim on a specific property or its proceeds. This property is called “the saddle” in insolvency law. The difference with claims encumbered with security interests is that the priority right here arises from the law and therefore does not have to be registered at a mortgage office. An important particular privilege is that of the “unpaid seller.”

Suppose you sell an excavator to a client company. Before the actual payment for that excavator is made, the company goes bankrupt. You can then invoke your privilege of unpaid seller with the receiver. This privilege gives you a retention of title. You will then be paid with priority over all other creditors from the proceeds of the sale of that excavator, or you can reclaim the excavator itself. An important condition is that the property (here the excavator) is still in the bankrupt’s estate at the time of the bankruptcy declaration. If the receiver cannot find the property, the particular privilege has become “saddleless” or without object.

Social liabilities

In the social liabilities, which come fourth in the ranking system of creditors, are the (former) employees of the bankrupt who believe they still have certain rights, such as back pay, holiday pay, etc.

General privileged creditors

The general privileged creditors come fifth in the ranking system of creditors. In contrast to the particularly privileged creditors, they have a claim on the entire general estate of the bankrupt. This is also a privilege arising from a legal provision. However, their privilege does not rest on a specific property, so they will be entitled to payment from the proceeds of the sale of the bankrupt’s overall estate.

Ordinary creditors

Finally, the ordinary creditors come last in the ranking system. They enjoy no guarantee or privilege for the payment of their claims. They will only be repaid after the higher-ranked creditors have been paid in full.

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