REALWorld Law

Real estate finance

Order of payment

In what order are creditors paid on a debtor's insolvency, and if more than one creditor holds the same security interest over the same real estate asset, how is that situation resolved?



Secured creditors will be paid in accordance with any agreed priority arrangements. If priority arrangements are not in place, the priority of payment will be governed by the priority rules set out in the Personal Property Securities Act 2009 (PPSA) in relation to personal property and generally in accordance with first in time principles in relation to land. As a general rule priority is based on the timing of the registration of security interests however this is subject to numerous exceptions and the priority provisions in the PPSA should always be carefully considered.

Generally, unsecured creditors rank in priority behind secured creditors and will share in any available proceeds pari passu; however, this is subject to various exceptions set out in the Corporations Act 2001 and the PPSA. Before unsecured creditors are entitled to their share of available proceeds, various expenses of liquidators or administrators must be paid (such expenses will include expenses incurred in realizing assets, remuneration and rent) as well as the insolvent company’s employee wages, superannuation, leave entitlements and redundancy payments.

In addition, some employee entitlements (such as wages, superannuation, leave of absence and retrenchment entitlements) will have priority over a security interest in circulating assets (a class of assets which in the course of the borrower’s business changes from time to time and which may be disposed of without consent of the lender).