MRL3701 - STUDY UNIT 17 Creditors' Claims and Their Ranking - The Different Types of Creditors Questions with Correct Answers

TYPES OF CREDITORS Correct Answer 1. concurrent creditors 2. secured creditors 3. preferent creditors CONCURRENT CREDITS Correct Answer - does not enjoy any advantage over other creditors of the insolvent. - are paid out of the free residue after any preferent creditors have been paid. - all rank equealy - should free residue be insufficient to meet their claims, each receives an equal proportion of his claim by way of a dividend. FREE RESIDUE Correct Answer that portion of the estate which is not subject to any right of preference by reason of any special mortgage, legal hypothec, pledge or right of retention. It is the unencumbered part of the estate. SECURED CREDITORS Correct Answer - one who holds security for his claim in the form of a special mortgage, landlor's legal hypothec, pledge or right of retention. - entitled to be paid out of the proceeds of the property subject to the security, after payment of certain expenses and any secured claim which ranks before his - if proceeds of the encumbered property are insufficient to cover the secured creditor's claim he has a concurrent claim for the balance - the option of relying solely on the security is not as unfavourable as it might at first seem since, a secured creditor who relies solely on his security is less likely to be called upon to contribute towards the costs of sequestration than one who elects to preserve his right to share in the free residue. - the creditor must in each case consider whether there is any change of his security not realizing enough to pay his claim and, if there is such a possibility, whether there is any prospect of creditors being made to pay a contribution.