The liquidator opens the file at 9am. Fixed-charge holders are paid from the warehouse sale by 11. By lunch, a stock supplier has driven a flatbed onto the loading bay and reclaimed £40,000 of unpaid pallets under a retention-of-title clause buried in their terms.
The bank, which sold its overdraft as “secured”, finds it never registered the floating charge at Companies House inside the 21-day window. By the time you read the Statement of Affairs, the supplier with three lines of small print has walked away whole and the bank with a glass-and-chrome lending team is queued behind preferential creditors.
That is the question this guide answers. A creditor is secured by paperwork over a specific asset, not by what they sold or how big they are. The label is decided at the document-signing moment, often years before insolvency, and you cannot reverse-engineer it once the liquidator is appointed.
Most directors arrive at us thinking “secured” means bank loan and “unsecured” means trade. The actual test is whether the paperwork registers a charge under section 859A Companies Act 2006, retains title under the Sale of Goods Act 1979, or pulls the director personally under a guarantee.
This page sits in the creditor classification cluster. For the distribution waterfall (who gets paid first in liquidation), see our guide to preferential and non-preferential creditors. The work here is upstream of that: what makes a creditor secured in the first place, and which paperwork directors should audit before the insolvency route is chosen.
A secured creditor holds a registered legal claim over a specific company asset, created by a charge document filed at Companies House, a retention-of-title clause on goods supplied, or contractual lien rights. An unsecured creditor has no such registered claim and stands behind every secured tier in liquidation, recovering pence in the pound where anything is recovered at all.
The difference is mechanical, not commercial. A high-street bank that lent £400,000 without registering the debenture inside 21 days is unsecured; a stationery supplier with a competent ROT clause and identifiable stock is, in substance, secured against that stock. You should treat security as a paperwork question, not a status question.
How a Creditor Becomes Secured
There are four routes. A fixed charge attaches to a specific identifiable asset and is registered at Companies House under section 859A Companies Act 2006. A floating charge attaches to a shifting class of assets (stock, debtor book) and crystallises into a fixed charge on insolvency.
A retention-of-title clause keeps legal title to goods with the supplier until paid in full, under section 19 of the Sale of Goods Act 1979. A personal guarantee makes a director personally liable for the company debt, which converts an unsecured company creditor into a secured creditor against the director.
Each route has its own paperwork, its own registration window, and its own failure mode. Most disputes we triage involve creditors who thought they were secured and were not, or who were secured by routes they had forgotten about.
Main Director Risk When Distinguishing Creditor Types
The pattern we see most often: the director is comfortable that the bank is secured, assumes trade is unsecured, and forgets the personal guarantee they signed in year one of trading.
When the company enters liquidation, the unsecured trade supplier with a PG over the director’s home becomes the most dangerous creditor in the file, even though they sit at the bottom of the company waterfall. The waterfall is irrelevant to a PG claim. The supplier sues the director directly.
What to Do Next About Secured and Unsecured Creditors
Before you commit to any insolvency route, audit three documents: the Companies House charge register for your company, every supplier’s standard terms for ROT clauses, and your own personal guarantee file.
If you do not know whether a charge is registered or whether a guarantee is enforceable, you cannot meaningfully compare CVL, administration, or rescue options. The classification question precedes the procedure question.
What Makes a Creditor Secured?
A creditor becomes secured by a document, not by what they sold. The four routes below cover almost every secured position you will see on a Statement of Affairs. Each one is registered, contractual, or both.
Fixed Charge Security
A fixed charge is a registered claim over a specific identifiable asset: the freehold warehouse, the £180,000 print press, the named book debt. Once the charge is registered at Companies House under section 859A Companies Act 2006, the chargeholder controls the asset. The company cannot sell or refinance it without the chargeholder’s consent.
The 21-day registration window matters. A charge created and not registered at Companies House within 21 days of creation is void against a liquidator or administrator under section 859H.
The bank may have a perfectly drafted debenture and still find itself unsecured because nobody at the bank’s outsourced filing desk pressed submit on the MR01 inside three weeks. We have seen this on three files in the last 18 months.
For directors, the practical point is the charge register tells you who actually has security. A name on the register is secured; a name absent from the register is not, no matter what the loan documents say.
Floating Charge Security
A floating charge attaches to a shifting class of assets that the company keeps trading: stock, raw materials, the debtor book, work-in-progress. The chargeholder lets the company use those assets in the ordinary course of business.
On insolvency (or earlier crystallising events specified in the debenture), the floating charge solidifies and attaches to whatever assets are in the class at that moment.
Floating charges rank behind fixed charges, behind expenses of liquidation, and behind preferential creditors. They also fund the prescribed part for unsecured creditors under section 176A Insolvency Act 1986.
A bank with only a floating charge over a stock-light business often recovers far less than its loan documents implied. The recovery sits in whatever the floating charge realises, after preferential creditors are paid in full.
A qualifying floating chargeholder also has the right to appoint an administrator out of court under paragraph 14 of Schedule B1 Insolvency Act 1986. That is a procedural advantage even where the financial recovery is modest. For more on the mechanics, see our guide to company administration.
Retention of Title Clauses
Retention of title (ROT) is a contractual route to security that bypasses Companies House registration entirely. The supplier’s terms state that legal title to the goods stays with the supplier until paid in full, under section 19 Sale of Goods Act 1979.
If the goods are still identifiable and traceable when the company enters insolvency, the supplier collects them rather than queuing as an unsecured creditor.
The clause has to clear three tests in practice. The goods must be identifiable (a pallet of branded stock, not flour mixed into a batch of bread). The goods must be unsold and unprocessed (sold-on stock typically falls outside the clause unless tracing applies). And the clause must be incorporated into the contract before the goods were supplied, not retro-fitted on the invoice after delivery.
Where ROT works, it works well. A trade creditor with £40,000 of identifiable stock collects the stock and walks away. The bank, with a registered floating charge but no fixed charge over that stock, watches the stock leave the warehouse before the floating charge crystallises against anything. The order matters, and ROT goods are not in the insolvent estate to begin with.
Personal Guarantees as Indirect Security
A personal guarantee converts an unsecured company creditor into a secured creditor against the director personally. It does nothing to the company’s waterfall.
The supplier still ranks as unsecured against the company and recovers whatever the prescribed part produces. But the supplier also has a separate, parallel claim against the director, enforceable in the County Court or by statutory demand and bankruptcy petition.
Most director PGs are signed early in the company’s life, often as a condition of opening a bank account, leasing premises, or securing an asset finance line. By the time insolvency arrives, the director has often forgotten which creditors hold a PG and which do not. The Statement of Affairs will not tell you. You have to pull each supply contract and each finance agreement and check.
For more on the mechanics and survivability of director-side guarantees, see our guide to the risks of signing a personal guarantee. The short version: a PG survives the company’s liquidation. It does not die with the company.
What Makes a Creditor Unsecured?
An unsecured creditor is everyone left over once the four secured routes are accounted for. They have a contractual right to be paid and no security to enforce that right, which means their recovery depends entirely on what the floating charge realises and what the prescribed part produces.
Trade Creditors Without ROT
A trade creditor whose terms have no ROT clause, or whose ROT clause fails one of the three tests above, is unsecured. They join the queue with the other unsecured creditors and share the prescribed part pro rata. In our caseload, typical trade unsecured dividends sit between 0p and 12p in the pound, with a median closer to 2p.
You can move from unsecured to secured in two ways before trouble arrives. The first is upgrading your standard terms to incorporate a robust ROT clause that survives processing and tracing, taking advice on the drafting. The second is asking for a director PG on accounts above a threshold (typically £20,000 of credit).
Both routes are paperwork moves and both have to happen before the credit is extended, not after the company has filed for insolvency.
Tax Creditors and HMRC’s Position
HMRC sits in two places at once on the modern UK waterfall. Since 1 December 2020, HMRC is a secondary preferential creditor for taxes the company collected from third parties (VAT, PAYE income tax, employee NIC, CIS deductions, student loan deductions). HMRC’s own taxes (Corporation Tax, employer NIC) remain unsecured.
That distinction matters when you read a Statement of Affairs. A £140,000 HMRC claim that is mostly VAT and PAYE will swallow most of the floating-charge realisations before any unsecured creditor is paid. A £140,000 HMRC claim that is mostly Corporation Tax will sit in the unsecured pool with the trade suppliers. Same headline figure, very different effect on every other creditor in the file.
HMRC is not “secured” in the sense used by banks and ROT suppliers. There is no charge document and no asset attaches. The preference is statutory, not contractual. But the practical effect on unsecured trade recovery is the same as if HMRC had a charge ahead of them. We track the split on every file we open.
Statutory Demand Rights for Unsecured Creditors
An unsecured creditor with a debt of £750 or more (where the debtor is a company) can serve a statutory demand under section 123 Insolvency Act 1986, then petition for compulsory winding-up if the demand is not satisfied within 21 days. This is the strongest direct enforcement tool the unsecured creditor has, and it sits outside the ranking question entirely.
Statutory demands are aggressive and they accelerate insolvency. They also produce useful pressure when a director is wavering between paying and not paying. We see them used by trade creditors who have given up on the conversation and want to force a decision. For the mechanics from the receiving end, see our guide to dealing with creditor pressure.
How Secured and Unsecured Creditors Behave Differently
The structural difference between secured and unsecured is not just the order of payment. It is the set of enforcement tools each creditor has, the speed at which they can move, and the cost of the process. The table below sets out where each class actually sits.
Creditor type
How security is created
Enforcement tool
Typical UK insolvency outcome
Fixed-charge holder
Charge document + Companies House registration within 21 days (s.859A CA 2006)
LPA receiver, power of sale over the asset, court not normally needed
Full or near-full recovery from the asset; shortfall ranks unsecured
Floating-charge holder
Debenture over a class of assets + Companies House registration
Out-of-court administration appointment (Sch B1 para 14 IA 1986)
Modest recovery after expenses and preferential creditors; funds prescribed part
ROT supplier
Contractual term incorporated before delivery (s.19 SGA 1979)
Repossession of identifiable goods; no court needed where clause is clean
Full recovery of goods value where stock is identifiable and unsold
PG-backed creditor
Director’s personal guarantee in the supply or finance agreement
Direct claim against the director; statutory demand and bankruptcy petition
Recovery depends on director’s personal assets, not company estate
Unsecured trade creditor
None beyond the underlying contract
Statutory demand (s.123 IA 1986), winding-up petition, proof of debt
Median 0–2p in the pound from prescribed part; sometimes nothing
HMRC (VAT/PAYE/NIC/CIS)
Statutory secondary preferential rank since 1 Dec 2020
No charge; statutory ranking; petition rights as ordinary creditor
Paid ahead of floating charge and unsecured pool, often in full
HMRC (Corporation Tax, employer NIC)
None
Petition rights as ordinary unsecured creditor
Same as ordinary unsecured trade creditor
The asymmetric line: the security label is decided at the document-signing moment, not the creditor type. A small stationery supplier with a competent ROT clause and a director PG can walk away from a liquidation with full recovery of stock plus a personal claim against the director’s house.
A national bank with a floating charge that was registered three days late can rank below preferential creditors and watch its loan disappear into the prescribed part.
What Directors Should Do About Secured vs Unsecured Creditors
Before you choose an insolvency route, you need three documents in front of you. Each one answers a question that the procedure cannot answer.
Audit the Charge Register at Companies House Before the Insolvency Decision
Pull the company’s charge register from Companies House (the MR01 and MR04 filings, plus any pre-2013 charges still in force). The register tells you exactly which creditors hold a registered charge, in what order, and over which assets. It is free and takes 10 minutes.
You are looking for two things. First, every charge that is on the register is enforceable in the order shown; you cannot negotiate around it.
Second, any charge not on the register is unenforceable against the liquidator under section 859H Companies Act 2006, regardless of what the loan documents say. We have seen lenders discover the second point only after the insolvency. The director should know both before it starts.
Identify ROT Clauses on Every Outstanding Trade Invoice
Take your aged creditor list. For each supplier with an unpaid balance above (say) £5,000, pull the standard terms from their last invoice or order acknowledgement. Look for any clause that retains title until payment. If the clause exists and the goods are still on your premises, that supplier is, in substance, secured against those goods.
This is the audit most directors skip. They assume “trade is unsecured” and stop there. The reality on UK SME files is that 10–30% of trade creditors by value have ROT clauses of varying quality, and a meaningful subset are enforceable. If you ignore them you will be surprised on the day the liquidator arrives and a flatbed pulls into the loading bay.
List Personal Guarantees Separately from Company-Level Security
Pull every signed PG you can find in the company’s contract folder, your own filing cabinet, and your bank correspondence. A PG creates a parallel claim against you personally that is unaffected by anything that happens to the company. The waterfall does not protect you. The liquidator does not protect you. Even a successful CVL leaves the PG creditor free to come after your house.
List each PG with the creditor name, the amount, the asset (if any) the guarantee covers, and the date signed. Take that list to your insolvency advice meeting.
The PG list often determines whether the company can be liquidated cleanly or whether you need to negotiate the personal exposure first. For more on the upstream conversation, see our guide on what to do when an insolvent company owes you money, which covers the same paperwork from the creditor side.
Mistakes Directors Make About Secured vs Unsecured Creditors
Assuming the Bank Is Always Secured
The bank is secured if the debenture is registered at Companies House within 21 days of creation. If the registration window was missed, or if the charge was never registered (an embarrassing but real outcome on smaller loans), the bank is unsecured against the liquidator. Always check the charge register rather than assume.
Treating Trade Creditors as a Single Unsecured Block
Trade creditors are not a uniform unsecured class. Some hold ROT over identifiable stock. Some hold director PGs from contract sign-up. Some are funded by invoice-finance lines that may themselves carry charges further upstream. The label “trade creditor” tells you almost nothing about ranking on its own.
Forgetting That Personal Guarantees Survive the Company
The single most common surprise on a director’s first call to us is the realisation that liquidating the company does not extinguish the PG. The company dies; the guarantee does not.
The supplier or landlord with the PG still has a personal claim, payable from your assets, enforceable through the courts. We see directors lose their houses to PGs they had not thought about in three years. Treat the PG list as the most important document in the file.
Creditors’ Meeting: the meeting and decision-procedure mechanics that follow appointment of a liquidator.
Antecedent Transactions: what the liquidator can unwind, including preferences and transactions at undervalue, which can change who counts as a creditor.
Frequently Asked Questions About Secured vs Unsecured Creditors
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No. A bank loan is secured only if a charge document was created and registered at Companies House within 21 days of creation, under section 859A Companies Act 2006. Unregistered or late-registered charges are void against a liquidator under section 859H. Always pull the charge register before assuming security.
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Yes. A trade supplier with a competent retention-of-title clause over identifiable, unsold stock can recover the goods in full while a bank with only a floating charge waits behind preferential creditors. ROT goods sit outside the insolvent estate, so they are collected before the floating charge crystallises against anything else.
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A personal guarantee leaves the creditor unsecured against the company but secured against the director personally. The supplier still queues with other unsecured creditors in the company waterfall. Separately, the supplier can sue the director directly in the County Court or by statutory demand and bankruptcy petition. The two claims run in parallel and are unaffected by each other.
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No. HMRC has no charge over company assets. Since 1 December 2020 HMRC ranks as a secondary preferential creditor for VAT, PAYE, employee NIC, CIS, and student loan deductions, sitting between expenses of liquidation and floating-charge holders. Corporation Tax and employer NIC remain ordinary unsecured.
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Search the company’s name on Companies House. The charges tab shows every registered fixed and floating charge, the chargeholder’s name, the date of creation, the date of registration, and the asset description. Anything not on that register is unenforceable against the liquidator regardless of what the underlying loan documents say.
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Under section 176A Insolvency Act 1986, the prescribed part is a ring-fenced slice of floating-charge realisations reserved for unsecured creditors only: 50% of the first £10,000 plus 20% of the excess, capped at £800,000 for floating charges created on or after 6 April 2020. Preferential and secured creditors do not share in it.
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Yes. Liquidators routinely challenge ROT claims on three grounds: incorporation (was the clause part of the contract before delivery?), identification (are the goods still identifiable and traceable?), and processing (have the goods been mixed, modified, or sold on?). Clauses that fail any of these tests collapse to ordinary unsecured status.
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Sometimes. In our caseload, ordinary unsecured trade dividends sit between 0p and 12p in the pound, with a median around 2p. Recovery depends on the size of floating-charge realisations and the preferential pool, especially HMRC’s secondary preferential claim. Most files return little or nothing; a minority return enough to be worth claiming for VAT bad-debt relief.
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No. A personal guarantee is a separate contract between the creditor and the guarantor, usually the director. The company’s liquidation has no effect on it. The creditor can pursue the director personally for any shortfall after the company waterfall is paid. Many directors discover this after the company has been wound up and the supplier turns up with a statutory demand at the front door.
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A fixed charge attaches to a specific identifiable asset (a freehold, a named machine, an identified book debt). The company cannot deal with that asset without the chargeholder’s consent. A floating charge attaches to a shifting class of assets (stock, debtor book) that the company keeps using in the ordinary course, until the charge crystallises on insolvency.
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Worry about creditors who hold a personal guarantee, regardless of where they sit in the company waterfall. A PG-backed unsecured supplier can ruin a director personally even when the company creditors recover nothing. Secured creditors collect their asset and move on; unsecured creditors with a PG come after the director’s house. The PG list is the document that matters.
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Only with care. A creditor who takes a charge in the months before insolvency may find the charge attacked as a preference under section 239 Insolvency Act 1986 or as a transaction at undervalue under section 238. The liquidator can apply to set aside such transactions. The lookback periods are six months for ordinary creditors, two years for connected parties.
