Understanding the differences between priority and non-priority debts

What are examples of priority and non-priority business debts?

When facing challenges in paying multiple debts, it is beneficial to understand which ones should be prioritised and which can be addressed later. Certain creditors possess more authority than others in debt recovery and can do so without resorting to court proceedings.

Here is a list of the primary priority and non-priority business debts to assist you in directing attention where it is most urgently required.

Priority

I. Business mortgage/rent payments

Lenders for business mortgages and landlords possess the authority to take action without a court order. Failure to meet payments could lead to repossession of your business premises or removal of equipment/stock, emphasising the importance of maintaining open communication with your lender or landlord.

II. Business rates

Despite the notoriously high costs of business rates, you can appeal the ‘rateable value’ assigned to your premises. Various reliefs are available for qualifying businesses, potentially up to 100%.

III. Gas and electricity

Falling behind on energy payments may prompt your provider to cut off supplies to your premises, but they are required to provide advanced notice. Energy suppliers are often open to negotiations and may offer an extended payment plan.

IV. Water

Addressing arrears for water is advisable. Begin by paying your latest bill and then work on resolving the arrears if possible.

V. Income tax, VAT, and National Insurance

HMRC can take action without a court order. It’s crucial to contact them as soon as you anticipate missing a deadline. Negotiating a Time to Pay arrangement for all HMRC liabilities may be possible.

VI. Lease and hire purchase agreements

Returning an asset voluntarily and terminating the lease or hire purchase agreement may still leave you liable for up to half of the original amount. Once the item is returned, the remaining debt becomes non-priority.

VII. Trade suppliers

Consider prioritising suppliers who are the sole providers of specific items crucial to your business, safeguarding your ability to trade.

VIII. Bank loans

Secured bank loans tied to an asset should be regarded as priority debt. Unsecured loans are typically non-priority unless there’s concern that the bank might impose restrictions on your company accounts.

IX. Accountant

Consider your accountant’s fees as a priority if they refuse to return your books, especially if you need them for completing a tax return.

X. Personal guarantees

Any borrowing involving a personal guarantee constitutes priority debt. Lenders may invoke the guarantee if loan repayments lag, and they perceive no realistic prospect of payment.

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Non-priority debts

The consequences of failing to pay non-priority debts are less severe:

I. Business credit cards and overdrafts

These typically fall under unsecured loans and are categorised as non-priority.

II. Business supplies (non-essential)

Non-essential business supplies, like office stationery, computer accessories, or accounts with suppliers of cleaning products, are considered non-priority.

III. Some bank/building society loans

Loans not secured on an asset or by personal guarantee are generally regarded as non-priority debt.

IV. Charge cards

Credit agreements for charge cards, such as American Express, differ from standard credit cards. Providers may be less willing to negotiate extended terms with you.

Vanguard Insolvency boasts a team of insolvency experts to assist you in identifying priority and non-priority debts within your business. We can liaise with creditors on your behalf to establish an affordable payment plan or, where applicable, engage in negotiations for a formal insolvency solution.