How do creditors and other stakeholders rank on an insolvency of a debtor? Do any stakeholders enjoy particular priority (e.g. employees, pension liabilities)? Could the claims of any class of creditor be subordinated (e.g. equitable subordination)?
Restructuring & Insolvency (3rd edition)
Ranking of Creditors and Other Stakeholders and Priorities
Creditor claims on a debtor's insolvency rank in the following order:
i) Super-priority claims. These include:
- valid trust claims;
- realty property taxes;
- certain deemed trusts and super-priority pension and wage claims;
- claims under the Wage Earner Protection Act;
- qualified unpaid supplier claims, commonly referred to as "30-day good claims" or "revendication claims" (these are similar to reclamation rights under the US Bankruptcy Code);
- unremitted payroll deductions; and
- court-ordered charges in CCAA proceedings and bankruptcy proceedings.
ii) Secured claims. These are established under the applicable provincial personal property security legislation (for example, the Personal Property Security Act in Ontario or the Québec Civil Code in Québec) and are ranked according to the legislative scheme under which they are devised.
iii) Preferred unsecured claims. These include:
- landlord claims for up to three months' arrears of rent and three months accelerated rent, if provided for in the applicable lease agreement;
- amounts that would been paid to a secured creditor but for the payment of wage and pension claims; and
- certain workers' compensation claims.
iv) General unsecured claims. These rank pari passu with each other.
Creditor claims have priority over shareholder claims. Secured creditors rank ahead of preferred and unsecured creditors other than for certain claims that are given priority under statute. In some instances, the priorities may differ depending on the type of insolvency proceeding.
A bankruptcy court in Canada may, if the circumstances warrant it, subordinate an otherwise pari passu claim to another. Although neither the BIA nor the CCAA expressly reference “equitable subordination”, section 183(1) of the BIA provides that certain enumerated courts are “invested with such jurisdiction at law and in equity as will enable them to exercise original, auxiliary and ancillary jurisdiction in bankruptcy and in other proceedings”.
Courts have been hesitant to definitively pronounce on the doctrine’s availability in Canada; nevertheless, Canadian courts have applied the doctrine both expressly or by implication.
British Virgin Islands
In general, the following priorities apply:
- Set-off: An unsecured creditor may be able to take advantage of statutory set-off provisions where there is mutuality between credits and/or debts to the extent that there are any funds of the debtor’s in its hands.
- Secured creditors: secured creditors can enforce against their collateral notwithstanding the supervening liquidation, and may also add interest to their security, subject to the note at 3 below.
- The costs and expenses of the liquidation: this includes inter alia the costs and expenses incurred by the liquidator and the liquidator’s own remuneration which are themselves paid in an order of priority, see Rule 159 of the BVI Insolvency Rules, 2005.
- Preferential creditors: this class includes -
a. the wages and salary of present and past employees in respect of the period of six months immediately before the commencement of liquidation up to US $10,000,
b. accrued holiday pay in respect of the period before the commencement of liquidation up to US $10,000,
c. any amount due by the debtor to the BVI Social Security Board in respect of employees’ contributions deducted from the employee and in respect of employers’ contributions payable for six months immediately before the commencement of the liquidation,
d. any amount due in respect of pension contributions or medical-insurance contributions payable in the period of twelve months immediately before the commencement of the liquidation, including amounts deducted from employees, up to the amount of US $5,000 per employee,
e. sums due to the government of the Virgin Islands in respect of any tax, duty (including stamp duty), license fee, or permit, up to the total amount of US $50,000, and
- sums due to the Financial Services Commission in respect of any fee or penalty up to the total amount of US $20,000. Preferential claims rank equally between themselves, and if the assets of the company are insufficient to pay them all in full, they are paid rateably. Floating charges that are secured against the assets of the company (see Section 208 IA).
- All unsecured creditors’ claims.
- Subordinated claims: a creditor may acknowledge or agree that in the event of a shortfall of assets he will accept a lower priority in respect of a debt than that which he would otherwise have under the IA, that acknowledgment or agreement takes effect. This may have the effect of making a secured creditor rank pari passu with unsecured creditors or an unsecured creditor only ranking after the general body of unsecured creditors have been paid.
- Post-commencement interest: any creditor in a liquidation is entitled to claim interest on its debt in respect of the period after the commencement of the liquidation. Payment of post-commencement interest will be made out of any surplus that remains after all claims in the liquidation have been paid in full before being applied for any other purpose.
- Non-provable unsecured creditors (possibly): in the English case of Re Nortel Companies and others  UKSC 52, the existence of a category of debts that were not provable, and were not payable as expenses of the insolvency process were recognised. It remains to be seen if the BVI Courts will be prepared to recognise non-provable debts in the same way.
- Members: Any surplus remaining after paying the costs and expenses of liquidation, claims and interest must be distributed to the members of the company in accordance with their rights under the company’s memorandum and articles of association.
Secured creditors can enforce their security by taking possession of and selling any secured asset in satisfaction of the debt without reference to the liquidator (regardless of the stay that arises on the commencement of an official liquidation). If the sale proceeds realised from a secured asset are insufficient to discharge the outstanding debt to the secured creditor, the creditor can claim as an unsecured creditor in the liquidation for the balance of the debt.
Cayman Islands law provides for a very limited class of preferential creditors. Preferred debts include wages accrued during the four months immediately preceding the commencement of the liquidation, payments due in respect of any medical health insurance premium and any taxes due to the Cayman Islands Government. Under the Companies Law, preferred creditors rank ahead of unsecured creditors and ahead of secured creditors where the secured creditor's security is in the form of a floating charge, but behind the liquidator's remuneration and expenses.
Unsecured creditors rank pari passu in respect of their claims in the liquidation. The quantum of any distribution made to unsecured creditors will be determined by the value of any realisations achieved by the liquidator.
Any subordination agreements made between the company and a creditor prior to the commencement of the liquidation are binding on the company in liquidation and will be enforced by the official liquidator.
In the bankruptcy of a debtor, the debtor’s assets are required to apply towards payment of bankruptcy expenses and collective debts in the first place, and then towards settlement of other debts in the sequence of employees’ claims, social insurance premiums payable, taxes due, and ordinary claims. Any late-payment penalties arising from unpaid taxes are ordinary claims if the penalties are imposed before the court accepts the bankruptcy application, or they are not considered as bankruptcy claims at all if imposed after the acceptance of the application. Holders of security interests have a priority right to compensation over certain assets. According to the minutes of the meeting of PRC courts on trial of bankruptcy cases, punitive claims, such as civil punitive damages, administrative fines and criminal fines, as well as claims unduly arising between affiliated companies, are subordinate to other ordinary claims.
The order of priority of the creditors is governed by the Danish Insolvency Act.
According to the order of priority, costs and fees related to the administration of the estate are covered first.
Next costs related to a vain restructuring attempt or vain attempts at an overall arrangement with the debtor’s creditors prior to the insolvency are covered.
Employees’ claims are covered next.
Next claims are covered that concern duty on goods that are subject to duty, eg alcoholic and tobacco goods.
Next, the unsecured creditors are covered, eg an ordinary receivable based on an invoice, tax and VAT claims etc.
Finally, claims for interest after the issue of the insolvency order, gifts and fines are covered.
Creditors that hold a charge or another type of security over the debtor’s assets are covered separately as the proceeds from the sale of the charged asset go directly to the secured creditor.
Insolvency proceedings are concluded with distribution of the company value to the different claimholders in the selected assets of the debtor. The value distribution follows a predetermined rank order. Creditors’ ranking is, however, very complex to describe since it will depend on many factors.
However, the priority rules of claims payment are generally the following: (i) employee-related claims (AGS: Association pour la gestion du régime de garantie des créances de salaries) benefit from a preferential status (superprivilège des salariés); (ii) costs of the insolvency proceedings; (iii) post-petition claim benefit from a statutory privilege (“new money” priority); (iv) claims secured through security interests over immovable property, specific security interests over movable property, in particular security interests to which a lien (“droit de retention”) is attached; (v) claims that have arisen after the judgment opening the insolvency proceeding and which are necessary to conduct the proceeding, and all other claims according to existing priority rules.
During judicial liquidation proceedings, claims secured by a mortgage, by a pledge with retention of title or by a registered lien over property, plan or equipment, rank ahead of post-petition claim.
The German Insolvency Code provides the following ranks from senior to junior:
- Third party owners/creditors with segregation rights, i.e. the owners of assets that do not belong to the estate. Such assets have to be surrendered to their owners.
- Costs of the proceedings, i.e. the court costs and costs of the (preliminary) insolvency administrator.
- Other liabilities of the estate (Masseverbindlichkeiten) created in the course of the insolvency administration, for example pursuant to contracts entered into by the insolvency administrator after the opening of insolvency proceedings.
- General and secured insolvency claims in existence prior to the opening of the insolvency proceedings (Insolvenzforderungen).
General insolvency claims are those existing prior to the opening of insolvency proceedings. These claims receive an insolvency quota of the proceeds generated by the liquidation of the debtor’s assets, and by realization of claw-back rights and other claims of the estate, after satisfaction of the senior ranking costs of the proceedings and the estate’s other liabilities.
Secured claims are also general insolvency claims, but such creditors are entitled to a preferred satisfaction from the proceeds of the realization of their collateral. To the extent they remain unsatisfied after the preferred satisfaction, they are treated the same as other creditors with general insolvency claims.
- Subordinated creditors: Pursuant to Sec. 39 Insolvency Code, certain claims, in particular, certain claims for the repayment of shareholder loans and claims corresponding in economic terms to such loans as well as claims that the creditor and debtor agreed to be subordinated, are subordinated by operation of law and shall be satisfied after the claims of other insolvency creditors.
- Shareholders: Any remaining surplus after satisfaction of all creditors shall remain with the debtor or be distributed to the shareholders of a debtor that is a legal entity automatically dissolved by the insolvency and not continued by an insolvency plan.
Creditors and shareholders are paid in the following order in Bermuda:
- Costs of insolvency proceedings: all costs, charges and expenses properly incurred in the company's winding-up are paid first, including the liquidator's remuneration.
- Debts owed to employees: these are sums due to employees under their contracts of employment.
- Preferential payments – including unpaid taxes, contributions to occupational pension schemes and statutory compensation for injury or occupational disease.
- Debts secured by a floating charge - holders of a floating charge take priority over unsecured creditors, however their claim will be subordinated to the higher priority claims, which must be paid out of property secured by a floating charge if the assets of the company are not otherwise sufficient to meet them.
- Unsecured debts - including shareholder loans and inter-company loans.
- Debts owed to shareholders in their capacity as shareholders.
- Shareholders' equity - any residual value or equity after all valid creditor claims have been satisfied in full will be returned to shareholders.
Each category of debts must be paid in full before the payment of creditors in the subsequent category. Creditors in the same category rank equally among themselves. A company can enter into an agreement with its creditors under which certain debts are contractually subordinated to other debts.
After satisfaction of the monies owed to secured creditors the following ranking applies to the distribution of company assets on liquidation pursuant to section 1 of the Preferred Debts (Guernsey) Law, 1983 and section 419(1)(a) of the Companies Law 2008:
i. The fees and expenses of the winding up process;
ii. Preferential debts;
iii. Ordinary Debts (typically trade creditors);
iv. Postponed Debts (two categories of creditor are postponed until the claims of all other creditors for valuable consideration in money or money's worth are satisfied under the Partnership (Guernsey) Law, 1995: a creditor who lends money to a sole trader or firm on the terms that the rate of interest payable on the loan varies with the profits of the business; and sellers of the goodwill of a business in consideration of a share of the profits); and
v. Surplus Assets.
Preferential debts in Guernsey include unpaid rent owed to local landlords (in priority to all other preferential debts), limited amounts of salary, accrued holiday remuneration, Guernsey income tax and class 1 social insurance contributions.
In an Irish corporate insolvency, proceeds are generally distributed in the following order:
- if the receiver/liquidator is appointed to a company that has been in examinership, the fees, costs and expenses of the examiner will rank prior to all other claims, including those of a fixed charge holder;
- the costs and expenses of the receiver/liquidator, including with respect to all taxes, including capital gains tax (“CGT”), arising on the sale of the fixed charge assets, rank ahead of the fixed charge holders;
- the fixed charge holders are entitled to the net proceeds of the sale of the fixed charge assets (after the costs and expenses of the receiver) up to the value of the secured debt - any surplus debt can be claimed by the charge holder as an unsecured creditor;
- if the receiver/liquidator is appointed to a company that has been in examinership, any liabilities of the company that have been certified by the examiner as having been necessarily incurred to enable the formulation of a Scheme of Arrangement with respect to the company will rank ahead of all creditors other than fixed charge holders;
- certain social insurance deductions collected by the company from employees in respect of employees (known as “super-preferential creditors”) are considered to be held on trust for the Irish Revenue Commissioners;
- the costs and expenses of the receiver/liquidator, including with respect to all taxes, including CGT, arising on the sale of the floating charge assets, rank ahead of preferential creditors and the floating charge holder; and
- certain claims of statutorily preferred creditors will rank ahead of and be paid in priority to the floating charge holder, including (a) employees’ salaries and unpaid holiday entitlements, (b) unpaid taxes and employers' social insurance contributions, (c) pensions contributions and (d) commercial rates rank ahead of and paid in priority to the floating charge holder.
All claims in one category receive full payment before the balance is distributed to the creditors in the next category. When proceeds are insufficient to meet the claims of one category in full, payments for that category are distributed on a pro rata basis.
In a receivership, where there are secured creditors that have prior ranking security over some or all of the assets over which the receiver has been appointed, the receiver must apply the proceeds in accordance with the ranking of the debt, notwithstanding that he or she may have been appointed by a junior-ranking secured creditor.
Whilst creditors, including shareholders, may contractually agree to subordinate their debt claims to those of other creditors or classes of creditors, and such contracts will be enforced by the Irish Courts, Irish law does not have a concept of “equitable subordination” that would be imposed on any class of creditor, including a shareholder that is also a creditor.
- Secured creditors are paid in full including interest to the date of payment, less the costs of and associated with the sale of the collateral. (Désastre Law Art.32 and Companies Law Art.166)
- Priority creditors are limited to the following in this priority:
(i) payment of the Viscount or liquidator's fees properly incurred, including the costs of the application process where the Court so orders;
(ii) payment of up to 6 months of arrears of salary of any employees and any outstanding holiday pay and bonuses;
(iii) payment of local employee related taxes;
(iv) up to two months arrears of rent; and
(v) payment of local rates for a period not exceeding 2 years.
- Where non-priority creditors cannot be paid in full, the available assets are distributed pari passu.
- There is no difference in treatment of local and foreign creditors.
- Jersey does not recognise equitable subordination. Contractual netting and set off provisions are given effect in Jersey law.
Creditors are ranked according to the following priority:
- Privileged labor claims (i.e., labor obligations for the previous year’s salary, benefits and severance).
- Administrative claims.
- Claims incurred to attend to the regular expenses in connection with the security, repair, conservation and management of the estate assets.
- Claims for judicial or extrajudicial procedures for the benefit of the estate.
- Burial expenses.
- Terminal illness expenses.
- Secured claims.
- Labor (other than privileged labor claims) and unsecured tax claims.
- Priority claims.
- Unsecured claims.
- Subordinated claims (ie, claims of those who have contractually agreed to subordinate their claims to unsecured claims, and unsecured claims held by related-parties other than parents of the debtor).
- Creditors of unlimited partners of the debtor, if their claims arose after the partner became an unlimited partner.
The Insolvency Act gives payment priority to creditors over stakeholders. In a liquidation proceeding, the liquidator is required to pay debts as per the following order of priority:
First: Labor claims (including pension claims).
Second: Alimony claims (applicable only when debtor is an individual).
Third: Secured claims (such as creditors secured by mortgage, pledge, antichresis, warrants, liens, or precautionary measures).
Fourth: Tax claims.
Fifth: Non-secured claims.
This order of priority is not applicable to a restructuring proceeding or to a preventive insolvency proceeding, unless the debtor’s assets to be sold or transferred are fixed assets.
On the other hand, the Insolvency Act does not allow the bankruptcy authority to subordinate or modify the order of priority on claims vis-à-vis any other creditors.
Rank of claims is regulated within the Bankruptcy Law. The main rule is to satisfy costs of proceedings with the highest priority (they are satisfied in the first place). Remaining claims are satisfied in the order specified in Article 342 of the Bankruptcy Law, depending on category to which they fall (claims falling into the lower category may be satisfied only if claims falling into higher categories have been fully satisfied). First category of claims covers among others: employees’ claims, maintenance claims and workers’ compensation, social security contributions defined in the Social Security System, particular amounts resulting from restructuring proceedings of the debtor.
Apart from rank of claims, the secured creditors enjoy preferential treatment with regard to liquidation of secured assets. Except as otherwise provided in specific regulations, secured creditors should be satisfied from the proceeds of the liquidation of the encumbered asset, reduced by the costs related to the liquidation of the asset and other costs of bankruptcy proceedings.
Secured creditors (aside from floating charge holders) rank outside the liquidation, and may realise their security notwithstanding the appointment of a liquidator. However, secured creditors who participate in the liquidation process by voting in respect of their secured debt are deemed to have forfeited their security.
The Companies Act also provides that the following classes of debt have priority over all unsecured debts in the following order:
a. the costs and expenses of the winding up;
b. wages and salaries of employees (up to a prescribed limit);
c. retrenchment benefits (up to a prescribed limit);
d. work injury compensation under the Work Injury Compensation Act;
e. contributions to employee’s superannuation or provident funds;
f. remuneration in respect of vacation leave; and
g. tax and goods and service tax.
In addition, items (a), (b), (c), (e) and (f) in the list above will be paid in priority over the claims of any floating charge holders. Where there are insufficient assets to satisfy any one class of debts, the debts within the same class are paid out on a pari passu basis.
Any residual assets of the company remaining after payment of all secured, preferred and unsecured creditors will be divided amongst the company’s shareholders, first in accordance with the terms of their preference shares, and then equally amongst the ordinary shareholders.
The order in which all claims rank is governed by the Swedish Rights of Priority Act. In short and in somewhat simplified terms, the proceeds from the realization of assets in bankruptcy shall be distributed in the following order.
i) claims from fixed charge holders;
ii) costs of proceedings (mainly official receiver’s fee and expenses);
iii) claims from certain preferred creditors; a) bankruptcy filing costs, b) company reorganization administrator’s fees or costs prior to bankruptcy, c) “super-priority” claims approved by company reorganization administrator prior to bankruptcy, and d) accounting services claims;
iv) claims from floating charge holders;
v) claims from employees and contributions to pension schemes;
vi) claims from unsecured trade and other creditors (pro rata dividend in proportion to their claims),
vii) post-petition interest on unsecured debts; and
viii) finally, if there is any surplus, to the shareholders.
As listed above, except for the creditors holding different types of security over specific or floating assets, and thereby being secured (thus having priority) in relation to the assets in question, there are also certain statutory general preferential rights for particular stakeholders such as administrators, accountants, employees etc.
No, there is no concept of equitable subordination for any class of creditor under Swedish bankruptcy law.
Secured claims are satisfied directly out of the net proceeds from the realisation of the collateral. Should the proceeds not be sufficient to satisfy the claim of the secured creditor, the remainder of the claim ranks as an unsecured and non-privileged claim.
Unsecured claims are divided into three classes. Insofar as corporate debtors are concerned, the first class consists of certain employee claims up to a maximum amount of currently CHF 148,200 per employee as well as certain pension related social security claims, the second class includes claims of various contributions to social insurances and all other claims are comprised in the third class. Claims in a lower ranking class will only receive dividend payments once all claims in a higher ranking class have been satisfied in full and claims within a class are treated on a pari passu basis.
Subordination may result from a contractual subordination or an equitable subordination:
- Contractual subordination comes in two forms, i.e. (i) in the form of a deep subordination within the meaning of Art. 725 para. 2 CO where the creditor has agreed to come 'last in row' and (ii) in the form of a bilateral subordination (Nachrang) which only benefits selected creditors. The treatment of the former category is well established under Swiss law whereas the treatment of the latter category is disputed in an insolvency context.
- The concept of equitable subordination is being discussed primarily for shareholder and certain other affiliated parties' loans where funds were made available to a corporate debtor in a financial distress situation where no other third party financing would have been available. If admitted, an equitable subordinated claim would be treated in the same way as a claim subject to deep subordination.
The SIA qualifies the credits according to the following classes:
- Credits against the estate: these are the credits that accrue after the DIP and which will be satisfied in accordance with their maturity. As an example: claims of the worker´s salaries of the last 30 days of work prior to insolvency proceeding being declared or the court costs and expenses arising from assisting and representing the debtor will be classified as credits against the state (art.84 .2 .SIA).
- Insolvency credits: these are the credits that accrue before the DIP.
- Credits with special preference: this type of credits are those that are granted by an immovable or movable property. These credits shall be satisfied in the liquidation of the encumbered asset. Only in the event that exists excess amounts after the credits with especial preference have been paid, this excess will be destined to pay others credits (art. 90 SIA).
- Credits with general preference: Article 91 of SIA establishes the cases when certain credits will have this consideration, for example the relevant amounts for tax and Social Security withholdings owned by the insolvent debtor in fulfilment of legal obligation. This credits will be satisfied once the credits against the estate are be paid.
- Subordinated credits: article 92 of the SIA establishes the cases when credits will be qualified as subordinated, for example, the credits whose ownership corresponds to a person with a special relation with the debtor or claims for fines and other monetary penalties. These credit only will be paid once all the credits will be satisfied.
- Ordinary credits: credits that cannot be classified according to the above criteria, will be classified as ordinary credits.
The Code establishes the priority to be accorded to different types of claims. The priority of the claim will determine the holder’s rights in the proceedings, including the holder’s rights to a distribution. The priorities in a bankruptcy case are generally the following:
- Priority (or Super Priority) DIP (debtor-in-possession) Financing: This is a type of financing provided to a debtor during a bankruptcy case. It must be approved by the court and generally has the highest priority of repayment under the Code.
- Other Secured Claims: These are other pre- or post-petition claims which are secured by a lien on collateral (comprised of property of the debtor). The claim is secured up to the value of the collateral.
- Administrative Expense Claims: Generally, these are liabilities incurred by the debtor after the commencement of the case (e.g., vendors, labor, professionals). However, pre-petition claims can be granted this priority status (e.g., critical vendors, goods sold to/received by the debtor within the 20-day period immediately prior to the bankruptcy filing).
- Priority Unsecured Claims: The Code assigns priority, which may be limited in amount, to certain pre-petition claims (e.g., taxes, employee wages, consumer deposits).
- General Unsecured Claims: These are pre-petition claims which do not qualify for secured, administrative expense, or priority unsecured status (e.g., most vendor claims and unsecured bond type claims).
- Subordinated Claims: These are claims which are subordinated by agreement, operation of law, or order of the bankruptcy court (e.g., equitable subordination).
- Equity Interests: The Code places equity interests at the bottom of the priority list. As a general rule, the holders of equity interests receive nothing until all creditors have been paid in full (unless the all creditors agree otherwise).
On the insolvency of a debtor, proceeds from the realisation of assets must be distributed by an insolvency practitioner, in simple terms, as follows: fixed charge holders; expenses in the insolvency proceedings; preferential creditors; prescribed part creditors; floating charge holders; unsecured provable debts; statutory interest on provable debts; unprovable debts (a debt of the company which is not technically provable but which is required to be paid before shareholders are entitled to a return of capital); subordinated claims (where appropriately worded); and finally, shareholders.
Preferential creditors include certain (limited) employee remuneration claims. In addition, a “prescribed part” is carved out of the proceeds of floating charge realizations, which is made available to satisfy unsecured debts, up to a cap of £600,000.
The Government plans reforms to the preferential creditor regime, to make the UK tax authority, HMRC, a “secondary preferential creditor” for certain tax debts, including VAT and PAYE, from April 2020. It also plans to increase the maximum cap for the prescribed part from £600,000 to £800,000.
There is no concept of equitable subordination in England and Wales.
In liquidation proceedings, secured creditors are in a more favourable position than other creditors, since their claim ranks at the second place right after the liquidator fee.
In summary, the company’s debts shall be satisfied from its assets that are subject to liquidation in the following order:
- liquidation fees;
- secured claims;
- alimony and life-annuity payments, compensation benefits, restitutions;
- other claims of private individuals, with the exception of bonds;
- debts owed to social security funds, taxes;
- other claims;
- default interests and late charges, penalties; and
- claims of people who have a closer relationship with the debtor company.
Contractual subordination is not recognized by the liquidator or by the court.
There are 3 categories of creditors in the bankrupt estate (in order of priority): (a) the specific preferred creditors who have a privilege or security interest that gives them rights to particular assets (e.g. holders of a mortgage or a pledge), (b) the general preferred creditors (such as the tax authorities, social security authorities and employees); and (c) the non-privileged creditors. If the proceeds of enforcement of the sale of the secured assets proves to be insufficient to repay the claim of the specific preferred creditors, then these creditors become unsecured creditors in respect of the balance of their claim. Unsecured creditors will then rank behind the general preferred creditors.
Belgian legislation does not recognise the concept of equitable subordination. Belgian courts may, however, apply subordination as a sanction, e.g. to sanction a lender for having granted credit to and maintained a credit line for a company which is not creditworthy.