The importance of ranking becomes particularly apparent where the debtor’s assets are insufficient to satisfy all obligations; in such circumstances, the ranking of a debt may determine whether it is paid in full or only partially through pro rata distribution among creditors.
Egyptian law does not contain a single simple «table» that can be applied to every case without examination. The order of payment is determined through Restructuring, Preventive Composition and Bankruptcy Law No. 11 of 2018, the Civil Code, Labor Law No. 14 of 2025, tax laws, rules governing mortgages and in rem securities, and other special provisions.
First: What Is Meant by Priority of Payment of a Debt?
Priority is the right to have a particular debt satisfied before other debts when enforcing against the debtor’s assets or distributing the proceeds of a bankruptcy estate.
This priority may arise from:
- A statutory privilege granted because of the nature of the debt.
- A mortgage or in rem security over a specific asset.
- Special provisions governing the bankruptcy estate concerning administration expenses and debts incurred by the estate.
- A special provision in a later law granting a ranking ahead of the general rules.
A creditor who does not benefit from any of these advantages generally falls within the body of ordinary creditors and shares in the remaining assets in proportion to the debt.
Second: Distribution of Bankruptcy Estate Funds under the Bankruptcy Law
Article 235 of the Restructuring, Preventive Composition and Bankruptcy Law provides for the deduction of a number of amounts from the proceeds of the sale of the bankrupt’s assets before the remainder is distributed among ordinary creditors.
These amounts include under the provision:
- Fees.
- Expenses of administering the bankruptcy estate.
- Debts owed by the bankruptcy estate.
- Allowances granted to the bankrupt and their dependants.
- Amounts due to preferred creditors.
The remainder is then distributed among creditors pro rata according to their verified debts, while the shares corresponding to disputed or temporarily admitted debts are set aside until they are finally determined.
Third: The New Labor Law Changed the Ranking of Employees’ Rights
One of the most important recent developments is the enactment of Labor Law No. 14 of 2025, which entered into force on 1 September 2025.
Article 8 provides that amounts due to an employee or persons entitled through the employee and arising from the employment relationship enjoy a privilege over all movable and immovable assets of the debtor.
More importantly, the provision requires these rights to be satisfied before:
- Judicial expenses.
- Amounts due to the Public Treasury.
- Expenses of preservation and repair.
- Any other privilege ranking established or to be established under any other law.
The Law also treats social insurance contributions as part of employees’ rights to be collected and paid to the competent authority.
Fourth: Employees’ Entitlements Now Enjoy a Very High Priority
The current provision differs from traditional approaches that placed employees’ wages after certain expenses or limited the privilege to wages for a particular period.
Article 8 of the new Labor Law does not impose a general restriction limiting the privilege to «six months’ wages» as stated in older articles, but refers to amounts due to the employee or persons entitled through the employee and arising from the employment relationship.
Accordingly, the scope of amounts enjoying the privilege must be determined under the Labor Law and related implementing decisions, rather than by relying on Article 98 of former Labor Law No. 12 of 2003.
Fifth: Repeal of the Former Law Governing the Priority of Employees’ Rights
Labor Law No. 14 of 2025 expressly repealed Labor Law No. 12 of 2003 and also repealed Law No. 125 of 2010 concerning the ranking of employees’ preferential rights.
Accordingly, the current reference for ranking employees’ entitlements is Article 8 of the new Labor Law and the decisions issued for its implementation.
It is therefore not appropriate in an updated article to rely on Article 98 of the former law or Law No. 125 of 2010 as though they remain the currently applicable regime.
Sixth: The Relationship Between Article 235 of the Bankruptcy Law and Article 8 of the Labor Law
At first sight, Article 235 of the Bankruptcy Law appears to place fees and expenses of administering the bankruptcy estate before amounts due to preferred creditors.
However, Article 8 of the Labor Law, which is a later and more specific provision concerning employees’ rights, expressly provides that employees’ entitlements are satisfied before judicial expenses, the Public Treasury, preservation and repair expenses, and any other privilege ranking.
Accordingly, when determining the current order of distribution, Article 235 must be read in light of the later labor provision, and its sequence should not be applied in isolation from the special privilege established by the new Labor Law.
Seventh: Tax Debts and the Privilege of the Public Treasury
Taxes and other amounts due to the Egyptian Tax Authority enjoy a statutory privilege.
Article 49 of Unified Tax Procedures Law No. 206 of 2020 provides that taxes and other amounts due to the Authority enjoy a privilege over all assets of the debtor and rank ahead of other debts except judicial expenses, according to the tax provision.
However, the ranking of this privilege must now be read together with Labor Law No. 14 of 2025, which expressly grants employees’ entitlements priority over amounts due to the Public Treasury.
Accordingly, it is inaccurate to state that taxes always rank ahead of all preferred debts without exception.
Eighth: Not All Government Claims Have the Same Ranking
The term «government debts» is broad and should not be treated as a single legal category.
A public claim may consist of a tax, fee, social insurance contribution, fine, service charge, or another type of obligation, and each category may be governed by specific provisions determining whether a privilege exists, its scope, and its ranking.
The source of the public debt must therefore be identified before determining its priority within the bankruptcy estate.
Ninth: Creditors Holding Mortgages and In Rem Securities
The position of a creditor holding a mortgage or other in rem security differs from that of an ordinary creditor, because such creditor has a right linked to a specific asset of the debtor.
Examples include:
- A registered mortgage over real property.
- A possessory pledge.
- A security interest over movable property or a right under the applicable rules.
- Rights of specific lien and special privileges where their conditions are satisfied.
The secured creditor recovers from the encumbered asset according to the ranking of the security interest and the conditions governing its enforceability, registration, or recording where required by law.
Tenth: Registration or Recording May Be Decisive
An agreement between a debtor and creditor to «secure the debt» does not necessarily grant the creditor priority against other creditors.
Certain security interests are not enforceable against third parties unless specific legal procedures are completed, such as registration, recording, or possession depending on the type of security.
Accordingly, before relying on a mortgage or security interest, it is necessary to examine:
- The date on which it was created.
- The validity of the agreement creating it.
- Completion of registration or recording requirements.
- The asset to which it relates.
- Its ranking in relation to prior security interests.
- Its enforceability against the body of creditors.
Eleventh: What If the Encumbered Asset Is Insufficient to Pay the Debt?
Article 238 of the Bankruptcy Law regulates this situation.
If a mortgagee, preferred creditor, or holder of a right of specific lien does not recover the full amount of the debt from the proceeds of the encumbered asset, that creditor may participate for the remaining balance with ordinary creditors in the pro rata distribution, provided that the debt has been verified in accordance with the law.
A creditor may therefore have two positions within the bankruptcy estate:
- A creditor with priority in relation to the value of the encumbered asset.
- An ordinary creditor in relation to the remaining unsecured balance.
Twelfth: A Privilege Differs from a Mortgage
The two terms should not be used as though they were synonymous.
A privilege is a priority granted by law to a particular right because of its nature and does not arise merely through agreement between the parties.
A mortgage, however, is an in rem security created in accordance with the applicable legal rules and grants the creditor priority over the proceeds of the mortgaged asset.
The Civil Code expressly provides that a right enjoys a privilege only by virtue of a statutory provision.
Thirteenth: General Privileges and Mortgaged Real Property
The general rules of the Civil Code provide that certain general privileges may rank ahead of registered mortgages even where the mortgage was registered earlier, according to the ranking prescribed by law.
Following the enactment of Article 8 of the new Labor Law with its express wording giving employees’ rights priority over any other privilege ranking, the relationship between employees’ rights, mortgages, and other security interests can no longer be determined merely by applying the rule of «first in registration».
Priority may arise directly from statutory provisions regardless of the date on which the debt was agreed.
Fourteenth: Debts Incurred by the Bankruptcy Estate
A distinction must be drawn between the bankrupt’s debts existing before the declaration of bankruptcy and obligations arising from administration of the bankruptcy estate itself.
Article 235 expressly refers to debts owed by the bankruptcy estate among the amounts deducted from the sale proceeds.
Depending on the nature of the proceedings, these may include obligations necessary for administering and preserving the assets or continuing the business within the limits permitted by law.
These debts differ from the trader’s pre-existing commercial debts owed before the judgment.
Fifteenth: Ordinary Creditors and Pro Rata Distribution
After satisfaction of rights that legally rank ahead, the remainder is distributed among ordinary creditors in proportion to their verified debts.
This is what is meant by pro rata distribution among creditors.
If total ordinary debts amount to EGP 10 million and only EGP 2 million remains available for distribution, each creditor generally receives 20% of the debt, subject to any factor affecting the legal position of the particular claim.
Sixteenth: Does a Bill of Exchange, Cheque, or Promissory Note Grant Priority?
The mere fact that a debt is evidenced by a cheque, bill of exchange, or promissory note does not, in itself, grant a privilege over the debtor’s assets.
A negotiable instrument may give its holder negotiable instruments rights and special enforcement mechanisms, but it does not automatically convert the creditor into a preferred creditor when bankruptcy estate funds are distributed.
Priority continues to depend on whether the debt is secured by an in rem security or benefits from a statutory privilege.
Seventeenth: Suppliers Do Not Automatically Enjoy Priority
A debt owed to a supplier for the sale of goods or provision of services is generally an ordinary debt unless a statutory provision or security interest grants it a special ranking.
The fact that the goods were essential to the company’s business or that the supplier dealt with the company for many years is not sufficient to create a privilege.
Securing the debt before financial distress therefore represents an important issue in long-term commercial contracts.
Eighteenth: Bank Loans Are Not Always Preferred
The fact that a creditor is a bank does not automatically grant its debt priority.
An unsecured bank loan may rank as an ordinary debt.
However, where the bank has obtained a valid and enforceable mortgage or other in rem security, its priority derives from that security rather than merely from its status as a banking institution.
Nineteenth: Do Debts Owed to Partners Always Rank Last?
No.
There is no general rule under Egyptian bankruptcy law treating every loan made by a partner to their company as «subordinated debt» ranking behind all other creditors merely because the lender is a partner.
The nature of the amount must first be examined:
- Is it a genuine loan to the company?
- Or a contribution to capital?
- Or a partner’s current account?
- Or an amount whose ranking was contractually subordinated?
- And is it secured by any security interest?
The legal position differs according to the correct characterization.
Twentieth: A Loan from a Relative of the Debtor Does Not Rank Later Merely Because of the Relationship
Likewise, there is no general rule placing a debt owed to a relative of the debtor in the last ranking merely because of the family relationship.
The personal relationship may affect assessment of whether the debt is genuine or fictitious, or the treatment of transactions carried out before bankruptcy, but kinship alone does not create a legally subordinated ranking.
Twenty-First: What Is Meant by Subordinated Debt?
The term Subordinated Debt is used in finance to describe a debt that has been contractually agreed to rank behind other debts in payment.
However, this is a contractual and financing concept that should not be converted into a general «fifth category» in bankruptcy without a statutory basis.
The enforceability and scope of a subordination agreement against other creditors and the body of creditors depend on its drafting, the law applicable to it, and the nature of the conflicting rights.
Accordingly, it is inaccurate to state that all debts owed to partners or relatives, or all unsecured interest claims, are automatically subordinated debts.
Twenty-Second: Interest Does Not Always Have a Separate Ranking
As a general rule, interest follows the debt from which it arises, subject to the special bankruptcy rules governing accrual of returns and the position of secured creditors.
Accordingly, there is no general rule placing «overdue interest» in a separate final ranking from the principal debt.
The type of debt, security, and special rules governing returns after declaration of bankruptcy must be examined.
Twenty-Third: Priority May Relate to a Specific Asset Rather Than All Company Assets
Some preferred or secured rights attach to all of the debtor’s assets, while others attach only to a specific asset.
This distinction is extremely important.
If a bank holds a mortgage over a particular property, the priority of that mortgage primarily relates to the proceeds of that property. If part of the debt remains unpaid after the property is sold, the bank generally becomes an ordinary creditor for that remaining balance pursuant to Article 238.
Twenty-Fourth: Priority Does Not Always Mean Full Recovery
Even a creditor with priority may not recover the debt in full if the assets securing it are insufficient.
Accordingly, when assessing the security, consideration should be given to:
- The true value of the asset.
- Prior mortgages over it.
- Privileges ranking ahead of it.
- Sale and enforcement costs.
- Potential changes in the asset’s value at the time of liquidation.
The existence of a mortgage with a high nominal value does not necessarily mean that the debt is economically fully secured.
Twenty-Fifth: How Can a Creditor Protect Its Position Before Financial Distress?
Protecting a creditor’s position begins before the company enters financial distress, not after bankruptcy is declared.
Measures that should be evaluated depending on the nature of the transaction include:
- Obtaining a valid and enforceable in rem security.
- Completing registration or recording within the appropriate time.
- Obtaining a guarantee or independent guarantee where necessary.
- Defining maturity and acceleration provisions.
- Monitoring the debtor’s financial position.
- Including financial Covenants in major financing agreements.
- Avoiding reliance on a commercial description of security without completing the legal formalities required for its effectiveness.
Twenty-Sixth: A Simplified Practical Ranking Does Not Replace Legal Analysis
For explanatory purposes only, the distribution process may be viewed as passing through several levels:
- Employees’ rights according to the special priority established by Article 8 of Labor Law No. 14 of 2025.
- Expenses, debts, and rights ranking ahead under bankruptcy laws and special provisions, taking into account conflicts and rankings among privileges.
- Holders of in rem securities and special privileges within the limits of the assets to which their rights attach and according to their ranking.
- Ordinary creditors sharing in the remainder through pro rata distribution.
However, this is not a rigid statutory table; in each case, the type of asset, the type of debt, the date of the security interest, and the special law governing the privilege must be examined.
Conclusion
Priority of payment of commercial debts under Egyptian law is not determined merely by whether a debt is «commercial» or «banking», but rather by its legal nature and the securities and privileges attaching to it.
Labor Law No. 14 of 2025 introduced a highly significant change by granting amounts due to employees a privilege over all assets of the debtor and requiring their payment before judicial expenses, the Public Treasury, preservation and repair expenses, and any other privilege ranking.
Taxes enjoy a privilege under the Unified Tax Procedures Law, while holders of mortgages and in rem securities recover from the assets subject to their security according to their ranking, and ordinary creditors participate in the remaining assets through pro rata distribution.
There is no general rule placing debts owed to partners or relatives, or interest claims, automatically in the «last ranking». The legal characterization of each debt determines its position.
Accordingly, protecting a creditor at the contracting stage is not achieved merely by evidencing the debt in a contract, cheque, or invoice, but through creating a valid legal security, completing the formalities required for its enforceability, and reviewing its ranking against other privileges before financial distress occurs.
Mostafa El Rouby Law Firm and International Arbitration provides services for reviewing the legal positions of creditors and debtors, analyzing mortgages, guarantees, and privilege rankings, and following up debt verification and distributions in bankruptcy proceedings according to the circumstances of each case.