Crown Preference: Update

The Chancellor has announced introduction of the Crown Preference will be delayed to 1 December 2020. It is now confirmed that this will apply to Northern Ireland from that date. From 1 December 2020, debts due to HMRC by insolvent business will be repaid before creditors who hold a floating charge, any other non-preferential unsecured creditors and pension schemes. Floating charge lending is often a main form of funding for SMEs and lenders have warned that the Crown Preference is likely to limit this type of finance. R3 has commented: “At a time when businesses are facing economic headwinds, they need the Government to help them, not elbow them out of the way. Priority repayment for HMRC in insolvencies will reduce what can get repaid to other businesses, pension schemes, and lenders. Reduced returns to lenders will increase the costs of borrowing and availability of finance, especially in rescue situations.”

Although the government recognises that this policy is likely to impact creditors, it remains to be seen what impact this policy will have in the long term.

This article has been produced for general information purposes and further advice should be sought from a professional advisor. Please contact our Insolvency & Business Restructuring team at Cleaver Fulton Rankin for further advice or information.

Maria McNally, Associate , Insolvency & Business Restructuring team, Cleaver Fulton Rankin, Solicitors.

---