In the distribution of the debtor's property certain claims are entitled to priority over others. Thus the landlord, although not entitled to a preference out of the funds in the hands of the trustee, can distrain for unpaid rent on the goods and effects of the debtor remaining on the landlord's premises, but where the distraint is levied after the commencement of the bankruptcy this right is limited by the act of 1890 to six months' rent due before adjudication, the remainder of his claim ranking for dividend with the claims of other creditors. Various gas and water companies have also statutory powers of distraint under special acts, but the policy of recent legislation has been to discourage any extension of such privileges. Where the bankrupt holds an office of trust in any savings bank or friendly society, any balance in his hands due to such bank or society has been held under the acts relating to these bodies to be payable in preference to any other claim against the estate. Other preferential claims are regulated by the Bankruptcy Acts and by the Preferential Payments in Bankruptcy Act of 1888, and include taxes, parochial and other local rates for not more than one year, wages and salaries for four months, but not exceeding £50 (limited in the case of ordinary labourers and workmen to two months' wages not exceeding £25), and agricultural labourers' claims not exceeding one year's wages, if hired by special contract for payment of a lump sum at the end of a year.
These claims are entitled to preference not only over funds in the hands of the trustee, but also over the proceeds of any distraint levied by the landlord within the three months prior to the receiving order, the latter in that case becoming a preferred creditor for the amount so paid. Articled clerks and apprentices may also be allowed repayment of a proportion of the premium on their unexpired agreements. On the other hand, usual trade discounts (exceeding 5%) must be deducted from traders' proofs, and the following claims are postponed until the general creditors are paid in full, viz. claims by a married woman for loans to the husband for the purposes of his business, claims for loans advanced to any person in business at a rate of interest varying with the profits, and claims for interest in excess of 5% per annum. Subject to these exceptions all debts proved in the bankruptcy must be paid pari passu. Any surplus after payment of 20s. in the pound and interest at the rate of 4% per annum, from the date of the receiving order, is payable to the bankrupt.
All claims and liabilities present or future, certain or contingent, arising out of obligations incurred before the date of the receiving order are provable in the bankruptcy, an estimate of the liability in the case of contingent debts being made by the trustee subject to appeal to the court. But demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable. A secured creditor if he proves must either surrender his security, or value the security and prove for the balance; and the trustee can thereupon, subject to the creditor's power in certain circumstances to amend the valuation, take over the security by paying the amount of the valuation, or may require it to be realized. He may be required by the creditor to elect which of these courses he will adopt, failing which the equity of redemption will vest in the creditor. For further regulations as to proofs, the time within which they must be lodged for voting and for dividend, and the manner of dealing with them, reference should be made to the first and second schedules of the act of 1883 and the rules relating thereto.
After payment of costs of administration and preferential debts, it is the duty of the trustee to distribute the estate with all convenient speed, - the first dividend within four months after the first meeting of creditors, and subsequent dividends at intervals of not more than six months, but the declaration may be postponed for sufficient reason by the committee of inspection. Notice of the intention to declare a dividend is gazetted and sent to each creditor mentioned in the bankrupt's statement of affairs who has not proved. The notice should state the last day for proving in order to participate in the distribution, and should be given not more than two months before the declaration. When the dividend is declared, notice of the amount due, and of the place where the same is payable, is sent to each creditor who has proved, with a statement showing particulars of the estate. And provision must be made for creditors at a distance, who have not had time to prove, for disputed claims, and for debts the subject of claims not yet determined. Creditors who fail to prove before the declaration of a dividend are entitled to receive their dividends on proving before any subsequent dividend is declared, but cannot disturb the distribution of any dividend already declared.
Before distributing a final dividend notice is sent to every creditor whose claim has been notified to the trustee, but not finally established, with an intimation that unless so established within a specified period he will be excluded from participation in the estate. In the case of a bankrupt firm the joint creditors are not entitled to receive a dividend out of the separate property of the bankrupts until all the separate creditors are paid in full.