Wednesday 22 July saw Royal Assent of the Finance Bill 2019-21 which will mean that, in all insolvencies commencing on or after 1 December 2020, the UK tax authorities will move up the creditor hierarchy in insolvency proceedings in respect of certain taxes paid by employees and customers.
As a result, the debts due to the UK tax authorities in respect of taxes covered by the reform will rank ahead of floating charge realisations and unsecured claims, and will reduce them accordingly. The reform will affect recoveries under both new and existing floating charges. R3, the trade association for the entire community of the UK’s insolvency and restructuring professionals, has been at the forefront of opposition to this policy and along with the UK insolvency profession, believe this will damage the UK’s carefully cultivated business rescue culture. R3 has indicated it will monitor the impact of this policy once it is introduced and will continue to campaign against it and the consequences it will have for businesses, jobs and the economy.
What steps as a Lender should I be taking?
A lender with the benefit of a floating charge should take what steps it can to monitor the borrower/charger group’s fluctuating liabilities to HMRC in respect of the taxes caught by the reform in order to understand the impact of HMRC’s preferential claim upon the level of its floating charge recoveries in the event of an insolvency after 1 December 2020. This is likely to be particularly relevant where such groups are in financial difficulties and in any restructuring negotiations as the different stakeholders consider their options.
If you are a lender or a business and would like to find out more on how this is likely to impact on your recoveries/business then please feel free to get in touch with Steven Wright.