Chartered Institute of Stockbrokers (CISI) Professional Practice Exam

Who ultimately receives any surplus funds in the event of a company's winding-up?

1. Preference shareholders

2. Bondholders

3. Ordinary shareholders

4. Creditors

The correct answer is: Ordinary shareholders

In the context of a company's winding-up, the order of claims on the company’s assets is critical to understanding who receives any surplus funds. After a company is liquidated, assets are sold to pay off debts. The process typically prioritizes creditors, which includes secured and unsecured creditors, as they have the first claim to any assets. Once all debts and obligations have been satisfied, if there are any remaining funds, these are distributed to the shareholders. Among the shareholders, preference shareholders have a higher claim compared to ordinary shareholders as they usually receive their entitlements before ordinary shareholders when profits are distributed. However, in terms of receiving surplus funds after debts and obligations are settled, it is the ordinary shareholders who stand to gain last. Thus, when considering who ultimately receives any surplus funds after all higher claims have been met, ordinary shareholders have the right to any remaining assets after all other obligations—including those to creditors and preference shareholders—have been fulfilled. Therefore, in the event of a company's winding-up, after all preferred claims and obligations are satisfied, it is indeed the ordinary shareholders who receive any surplus funds.