Unsecured creditor (chirographaire)

An unsecured creditor (créancier chirographaire in French, ungesicherter Gläubiger in Swiss law) holds a claim against a debtor with no security interest in any specific asset — no pledge, no mortgage, no assignment. In the event of default, unsecured creditors rank below all secured creditors (first lien, second lien, any statutory preferred creditors) and recover only from the residual assets after senior claims are satisfied. In a typical LBO liquidation, unsecured creditors frequently recover little or nothing.

The main categories of unsecured creditors in a Franco-Swiss corporate context are: trade creditors (suppliers, service providers), unsecured bondholders, convertible note holders (before conversion), intercompany loan creditors at the holding level (where the holding is not consolidated in the security package), and contingent claimants (warranty claims under a SPA, litigation parties). In a distressed M&A asset sale, unsecured creditors typically negotiate a cash payment at cents on the dollar as part of the restructuring plan.

Understanding the unsecured creditor position is critical in any due diligence: significant unsecured creditor exposure may signal a contingent liability that the acquirer will either assume (in a share deal) or explicitly exclude (in an asset purchase agreement). In distressed situations, the unsecured creditor vote is required for a restructuring plan to be adopted under French safeguard (sauvegarde) proceedings.

At Hectelion, we identify and analyze unsecured creditor claims in our due diligences and distressed M&A mandates.