During the last two weeks two cases have been reported on the ability of charge holders to share in the Prescribed Part.
By way of background, in September 2003 when several changes were made to insolvency law through the Enterprise Act 2002, including the dropping of the government departments’ status as preferential creditors, a ‘Prescribed Part’ was introduced into company insolvencies – the purpose of doing so was to try to increase the chances of unsecured creditors, including the government epartments, receiving some return on their unsecured debts. Put another way, HM Revenue & Customs gave up their preferential status to become unsecured, and wanted something in return. In reality, it has transpired that the prescribed part only comes available to creditors in larger, rather than small run of the mill, insolvencies. Like buses, it has taken four and a half years for a test case to come to court to clarify whether holders of a floating or fixed charge (any shortfall on which would ordinarily fall to be unsecured) can share in the prescribed part. And when it did happen, two separate cases arrived.
In the first case, Permacell Finesse Limited, the judge held that the floating charge holder could not share in the prescribed part. The judge came to this decision on the basis of what he believed parliament’s intention was in changing the existing the legislation – he believed the intention was not to give chargeholders, the banks included, a windfall. In the second case, Airbase (UK) Limited, another court came to the same decision, but in respect of a fixed chargeholder’s shortfall.
So that’s it then, or so it appears: two courts of similar, high standing have come to the same decision seemingly independently. I suspect that the banks will be unlikely to spend good money in the forelorn hope of changing things. So banks, and other chargeholders, cannot share in the prescribed part, it must go to the other unsecured creditors.