Preferential Creditor

Section 386 of the Insolvency Act 1986 provides that 'A reference in this Act to the preferential debts of a company or an individual is to the debts listed in Schedule 6 to this Act', and that 'references to preferential creditors are to be read accordingly.' Schedule 6 lists the categories of debt given preferential status, which principally cover certain employee claims such as unpaid wages and holiday pay, subject to statutory limits.

In the statutory order of distribution in a liquidation or administration, preferential debts rank above the claims of floating-charge holders and ordinary unsecured creditors, though below the costs of the insolvency process and any fixed-charge security. Since 2020 the Act has also distinguished 'ordinary preferential debts' from 'secondary preferential debts' (which include certain HMRC debts), reflecting changes to the priority of tax debts owed to HMRC in an insolvency.