Order of priority of claims (BIA s. 136)

Anyone buying assets out of a bankruptcy, or lending to a business that could fail, meets this ranking. Section 136(1) applies the proceeds realized from the property of a bankrupt in a set order of payment, subject to the rights of secured creditors. The Office of the Superintendent of Bankruptcy says that once secured claims are settled, dividends are distributed in the order set out in section 136.

How the ranking runs

• The reasonable funeral and testamentary expenses of a deceased bankrupt come first, then the costs of administration, which include the trustee’s expenses and fees and legal costs.
• The levy under section 147 follows, then certain unpaid wages, salaries and similar amounts referred to in sections 81.3 and 81.4.
• Further items follow, including municipal taxes and a lessor’s arrears of rent, each within limits written into the paragraph. Read section 136(1) itself.
• The Superintendent says ordinary creditors divide what remains in proportion to how much each is owed.

What to check or ask

Ask whether a secured creditor holds security over the assets in question, because section 136 operates subject to those rights. Under section 136(3), a creditor whose rights are restricted by the section may rank as an unsecured creditor for any balance of its claim. Sections 137 to 140.1 postpone some claims, such as an equity claim until all non-equity claims are satisfied, so read them too. For how an asset purchase through a BIA process runs, see how to buy assets from an insolvent company through a BIA process and the entry on a secured creditor.