Royal Assent for the Finance Bill 2019-21: Return of Crown Preference
July 28, 2020
On Wednesday 22 July 2020, the Finance Bill 2019-21 received Royal Assent, meaning that from 1 December 2020 HMRC will become a secondary preferential creditor upon insolvency.
The Finance Act 2020 seeks to reintroduce the policy of ‘Crown Preference’, which is the phrase used to describe the preferential creditor status that HMRC had in respect of the distribution of assets in insolvency prior to 2002. Under the Enterprise Act 2002, Crown Preference was abolished, however as set out herein, this policy is now to be reinstated later this year.
The return of the ‘Crown Preference’ will come into effect notwithstanding the widespread opposition from the UK’s insolvency and restructuring profession, who believe this policy will negatively impact the UK’s business rescue culture.
The Position from 1 December 2020:
The return of the ‘Crown Preference’ will see HMRC rank behind fixed charge holders, and ordinary preferential creditors, but ahead of floating charge holders (who lend against changing assets) and unsecured creditors (such as the company’s suppliers or customers – including SME’s and some employee claims).
HMRC’s elevated claim status is limited to the following liabilities:
- Unpaid employee NIC;
- Student Loan Repayments; and,
However, despite calls for these claims to be capped, they are neither capped by amount or, time.
The reintroduction of this policy will likely result in unintended consequences to the UK’s insolvency framework, at a time when the UK’s economy can ill afford anymore instability and disruption.
The above is a short summary of the return of the Crown Preference, and over the next week, Exchange Chambers’ will consider the impact of the Finance Act 2020 in more detail.