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Insolvency Guide UK

Guidance for directors under pressure

Important: This guidance relates to company insolvency in England and Wales.

Who gets paid first in insolvency?

The general order of priority for creditor payments in insolvency.

Debt and consequencesLast reviewed: 2026-04-11

Short answer

In insolvency, creditors are not paid in whatever order directors prefer. Payments usually follow a legal order of priority. The exact outcome depends on the insolvency process, the assets available, and the claims involved.

Plain-English explanation

Once a company enters insolvency, the distribution of available funds is controlled by insolvency law rather than by normal commercial preference.

That means some claims are dealt with before others. In broad terms, the order can include:

  • the costs of the insolvency process
  • certain employee-related claims
  • secured creditors, depending on the nature of their security
  • preferential claims where applicable
  • unsecured creditors
  • shareholders only if anything remains, which is uncommon in insolvent cases

The precise ranking can be technical, but the key point for directors is simple: they should not assume they can choose who gets paid first once insolvency is likely.

Why this matters for directors

This matters because directors sometimes make payments under pressure without considering the wider consequences.

That can create risk where:

  • one creditor is favoured unfairly
  • connected parties are paid ahead of others
  • last-minute payments are later challenged
  • directors misunderstand how distributions work in liquidation or administration

Once insolvency is likely, payments need to be handled carefully.

What to check now

Directors should review:

  • which creditors are pressing hardest
  • whether any recent payments may look preferential
  • whether secured, employee, and tax claims are involved
  • whether the company is close to formal insolvency
  • whether further payments should be made without advice

What usually happens next

Usually one of these happens:

  1. Directors seek clarity before paying anyone else
    This reduces the risk of improper preferences.

  2. A formal insolvency process begins
    The office-holder applies the legal order of priority.

  3. Transactions are reviewed later
    Payments made before insolvency may come under scrutiny.

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