The Return of Crown Preference
On Wednesday 22 July 2020 the Finance Bill received Royal Assent, meaning that from 1 December 2020, HMRC will become what is known as a secondary preferential creditor in insolvencies.
In short, if a company falls into insolvency, for debts such as PAYE, employee NICs, and VAT, HMRC will get a bite of the cherry ahead of floating charge creditors and unsecured creditors. Floating charge creditors can include banks that lend against debts or other assets. Unsecured creditors can include company pension schemes, and the company’s suppliers.
Despite what HM Government might say about increased recoveries from insolvencies and lessening the taxpayer burden, some suggest that the move will cause any available cash to dry up; that UK companies will find it harder to borrow as lenders and financiers will be less willing to risk giving credit.
Interestingly, HMRC has been a preferential creditor in insolvencies before, but, presumably for the good of the UK companies, that was reversed some years ago. This reinstatement has understandably caused some concern across the banking and insolvency professions, and UK companies.
There is no doubt that HM Government will be looking to do what it can to replenish the UK coffers in light of the impact of Covid-19, but whether reinstatement of HMRC’s preferential status is the way, remains to be seen.
If you are a director or creditor of a company and would like to discuss this further, please get in touch with Andrew Tonge on 07771803759 or email@example.com
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