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In the chancellor's 2018 budget he announced that HMRC is once again to become a preferential creditor in a corporate insolvency process - and will therefore rank ahead of the holders of floating charge security and all unsecured creditors.
CURRENT POSITION
Currently HMRC is an unsecured creditor in respect of all taxes owed to it on any basis, including those originally due from third parties which are collected by a company and held pending onward payment. The holder of any class of charge, whether fixed or floating, currently ranks in priority over HMRC in respect of their claims against the company.
FROM 6 APRIL 2020
With effect from 6 April 2020 however, HMRC will become a secondary preferential creditor with an ability to recover VAT, PAYE Income Tax, employee National Insurance Contributions (NIC) and Construction Industry Scheme deductions collected by the company but not yet accounted for. This claim will rank in priority to floating charge holders and unsecured creditors, but not certain primary preferential creditors, such as employees.
Floating charge holders and unsecured creditors will essentially foot the bill for these taxes. This is because the prior ranking of HMRC's claim will dilute the number of realisations available to pay their claims, although HMRC's claim will still rank behind lenders' fixed charge realisations.
How should invoice finance and ABL providers react?
As a result of these impending changes, providers may wish to:
Upon learning of potential financial distress affecting a specific client, finance providers could also consider:
In addition, finance providers will be aware that the above changes are happening alongside significant reform to the overarching corporate insolvency regime, including the introduction of a new insolvency moratorium and a new ?cross-class? cram-down procedure.
Neil Riley, Partner, DLA Piper UK LLP
Lionel Blackledge, Partner, FRP Advisory LLP
26.04.24
22.04.24
24.04.24
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