There are three distinct types of Creditors:
1. Secured Creditors are Creditors holding security for their claims in the form of:
a. A special mortgage.
b. Landlord’s tacit hypothec - the landlord has a right established by law over moveable property belonging to the person who fails to pay rent. “Tacit” means that this right is implied and does not have to form part of a written contract.
c. Pledge or right of retention.
(i) Special retention is the right to retain property in terms of contract or agreement until the person or entity holding the property has been compensated for the labour or financial expenditure to such property.
(ii) General retention is the right to withhold or detain the property of another, in respect of a debt which is due by the owner of such property, to the person who has the custody thereof.
Secured Creditors rank first and are paid from the proceeds of the sale of the secured asset. No special priority applies among the secured Creditors, as each secured Creditor has a secured claim in respect of a particular asset. Where a secured Creditor’s claim is not satisfied in full, the unpaid balance is considered a concurrent claim.
2. Preferential Creditors do not hold specific security for their claims in liquidation, but rank above concurrent Creditors. They are paid from the proceeds of unencumbered assets in a pre-determined order as set out in the Insolvency Act. They include Employees’ remuneration (up to a prescribed amount) and SARS.
3 Concurrent Creditors are paid from any proceeds of unencumbered assets that remain after preferential Creditors have been paid in full. They are paid in proportion to the amounts owing to them.