Crown Preference to be reinstated - Kuits Solicitors Manchester

Crown Preference to be reinstated

Crown Preference to be reinstated

19th October 2020 - Published by Restructuring and insolvency team

Crown Preference

Lenders that take floating charges and primarily rely on that security need to know that in administrations or liquidations from 1 December 2020, “Crown Preference” will in part be re-introduced.

Preferential creditors are paid in priority to both floating charge creditors and ordinary unsecured creditors; HMRC will obtain secondary preferential status.

This new Crown Preference status will only apply to certain tax liabilities, effectively tax liabilities the company has collected from others, such as:

  • Pay-As-You-Earn Income Tax;
  • Value Added Tax;
  • Employee National Insurance Contributions; and
  • Construction Industry Scheme Deductions.

HMRC will remain an ordinary unsecured creditor for taxes incurred by the creditor itself, such as Corporation Tax and employer NICs.

SME funding market

While the Government claims that this will not have a significant impact on the funding market to SMEs, this change could be a cause for concern for lenders with floating charge security such as stock or WIP. The impact of this:

  • Will affect present and future floating charges in insolvencies commencing on or after 1 December 2020;
  • May alter lender’s preferences on which forms of security they will offer going forward, and may lead to more insistence on security assignment of assets rather than merely taking a charge;
  • May make floating chargeholders more willing to enforce (or insist on refinance where terms have expired) prior to 1 December 2020 in certain cases.

Get in touch with a restructuring and insolvency lawyer in Manchester

Kuits is happy to assist in provision of examples of how this may work, scenario planning in cases where floating charge security is of material importance, or assistance with enforcement or security enhancement prior to this change. Please contact the head of our restructuring and insolvency team Richard Palmer on 0161 503 2996 or email richardpalmer@kuits.com.

 

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