News & Important Dates

01 December 2020 - Crown Preference comes into effect

Later than originally planned, Crown Preference has now been implemented with effect from 01 December 2020.  This move essentially grants the government preferential treatment over most other creditors in insolvency procedures.

Under insolvency legislation, HMRC was classed as an ordinary unsecured creditor, meaning it came below preferential creditors and secured creditor with a creditor floating charge.  Crown Preference now makes HMRC a secondary preferential creditor for certain taxes, meaning recoveries in insolvency will be allocated to these HMRC debts ahead of many other creditors.  That could reduce the amounts that can be recovered by floating charge holders and unsecured creditors, which may in turn mean that they’re less willing to extend credit.  It does not affect financial institutions holding fixed charges over assets, who remain above HMRC in the creditor hierarchy.

HMRC notes that these measures relate to taxes paid by employees and customers, which businesses temporarily hold.  If these sums cannot be recovered in an insolvency then they do not go toward funding public services, as had been intended.

The fear is that Crown Preference is likely to have an impact on both access to and the cost of finance, exacerbating difficulties and deterring business growth at a time when businesses are struggling to recover.

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