Preferential Creditors Under Companies Act, 1956

Preferential creditors are those creditors who have a priority claim over other creditors in terms of payment in the event of the company's liquidation. The Companies Act, 1956, defines preferential creditors as those who have a right to be paid out of the assets of the company before the claims of other creditors.

Types of Preferential Creditors

There are three types of preferential creditors:

1. Secured Preferential Creditors: These are creditors who have security for their debts. They have a right to be paid out of the proceeds of the sale of the secured asset before other preferential and unsecured creditors.

2. Unsecured Preferential Creditors: These are creditors who do not have security for their debts but have a priority claim over unsecured creditors in terms of payment.

3. Statutory Preferential Creditors: These are creditors who have a priority claim over all other creditors, including secured creditors. They are provided for by law and include employees, workmen, and the government.

Claims of Preferential Creditors

The following claims of preferential creditors are given priority over other creditors:

1. Wages and salary of employees for the four months preceding the winding-up order.

2. Amounts due to the employees in respect of any compensation payable under the Industrial Disputes Act.

3. Any amount due to the employees as gratuity under the Payment of Gratuity Act.

4. Any amount due to the employees towards provident fund, pension fund, or any other fund established for their welfare.

5. Any amount due to the government in respect of taxes, duties, or cesses.

Conclusion

Preferential creditors are given priority over other creditors in terms of payment in the event of the company's liquidation. There are three types of preferential creditors, and their claims are provided for by law. Statutory preferential creditors are given the highest priority, followed by secured and unsecured preferential creditors.