With effect from 6 April, the UK government has increased the “prescribed part”—a portion of floating charge realisations that is set aside for unsecured creditors on a company’s insolvency—from £600,000 to £800,000.
The prescribed part is calculated in accordance with a statutory formula, and was previously capped at £600,000. As of 6 April, the cap has increased to £800,000 for any new floating charges created on or after 6 April 2020. The increase also applies to a floating charge created before 6 April 2020 if a later floating charge over the company’s assets ranks equally or in priority to the pre-6 April 2020 floating charge.
An increase to the prescribed part was first considered by the UK government in 2016 as part of its consultation on proposed reforms to the United Kingdom’s corporate governance and insolvency laws, and was reported on in the Government Response to that consultation in 2018. In the response, the government stated its decision that an increase in the cap would be linked to the impact of inflation on the original £600,000 cap which came into effect in 2003.
The UK government has fast-tracked implementation of many of the insolvency law reforms detailed in its 2018 Response as a result of the COVID-19 pandemic (For more information, read our LawFlash, UK Government Announces Insolvency Law Reforms Due to COVID-19).
We have also previously reported on Her Majesty’s Revenue and Customs’ new status as a secondary preferential creditor on a company’s insolvency, which is due to come into force in December 2020: UK’s Draft Finance Bill Proposes Preferential Status for HM Revenue & Customs.
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