Unsecured creditors are people or organisations your company owes money to where nothing has been put up as security. There’s no charge over property, equipment or other assets. The debt exists but it sits on trust.
In an insolvent liquidation, unsecured creditors are close to the bottom of the payment order. In practice, that usually means they’re the most exposed once the company runs out of money.
Understanding who counts as an unsecured creditor helps make sense of why some debts get paid first, why others don’t and why certain creditors start pushing harder when cash gets tight.
Common examples of unsecured creditors
Most everyday business debts fall into this category. Common unsecured creditors include:
- Suppliers with unpaid invoices
- HMRC for Corporation Tax, VAT and PAYE that isn’t classed as preferential
- Bounce Back Loan lenders and other unsecured business loans
- Landlords for rent arrears not backed by a deposit or charge
- Customers owed refunds
- Freelancers and contractors
- Utilities and service providers
If a creditor doesn’t hold a fixed or floating charge over company assets, they’re usually unsecured.
How unsecured creditors compare to other creditors
Insolvency law sets out a strict order for who gets paid and when. Unsecured creditors sit behind:
- Secured creditors, such as banks with charges over assets
- Preferential creditors, mainly employee wages and certain HMRC debts
Assets are sold in liquidation and the money is used to pay creditors in sequence. By the time unsecured creditors are reached there’s often very little left.
What happens to unsecured creditors in liquidation?
In a Creditors’ Voluntary Liquidation (CVL), a licensed insolvency practitioner takes control of the company and deals with its closure. For unsecured creditors, this usually means:
- Being formally notified that the company has entered liquidation
- Submitting a claim confirming how much they’re owed
- Waiting while assets are sold and funds distributed
- Receiving a payment only if money remains after higher-ranking creditors
In many small company liquidations, unsecured creditors don’t receive a dividend. That reflects the company’s financial position at the point of closure rather than anything being done to them personally.
Are unsecured debts written off?
Once liquidation finishes and the company is dissolved, unsecured debts are written off at company level. The company no longer exists, so the debt cannot be pursued further.
For you as a director, those debts usually stay with the company rather than becoming personal, as long as:
- You haven’t signed a personal guarantee
- There’s no sign of wrongful trading or other dishonest activity
- Company money hasn’t been misused
This is why liquidation is often used to bring unmanageable unsecured debt to a proper, legal end when the business can’t recover.
Why unsecured creditors often apply pressure early
Unsecured creditors have the least protection. If the company fails, they know their chances of recovery drop sharply. Because of that, they’re often the first to chase and escalate when payments stop.
That escalation can include:
- Repeated chasing and demands for payment
- Supply being stopped or moved to upfront terms
- Referral to debt collection agencies
- A statutory demand
- A winding-up petition
When several unsecured creditors are applying pressure at the same time, it’s often a sign the business is already struggling to pay debts as they fall due.
Key takeaways
- Unsecured creditors are owed money without security over company assets
- Most suppliers, tax arrears and Bounce Back Loans are unsecured
- They rank behind secured and preferential creditors in liquidation
- Unsecured creditors often receive little or nothing in insolvent liquidation
- Unsecured company debts are usually written off once liquidation completes
- Early pressure from unsecured creditors often signals insolvency
Get advice on unsecured creditors and liquidation
If unsecured creditors are chasing, it usually means confidence in the business has started to fade. Leaving things to drift increases the risk of statutory demands or a winding-up petition, which takes control out of your hands.
A qualified insolvency practitioner can look at where you stand, explain how creditors are likely to be treated and help you decide whether the business can be stabilised or whether liquidation is the more appropriate step.
Getting advice early gives you clarity on timing, risk and responsibility and helps you stay in control of what happens next.
