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Member Article

Supporting businesses through the return of Crown Preference

Committed to supporting businesses to better understand the return of Crown Preference, Corporate and Commercial Business Solutions Ltd, a commercial finance brokerage and business consultancy, aims to inform and support business owners, bankers and accountants to navigate the new legislative changes from December 2020.

Crown Preferential status returns on 1st December 2020. This means that in relation to any business that enters an insolvency process from 1st December, HMRC’s entire claim for tax debts collected by a company on behalf of the Crown (including VAT, PAYE, CIS, Employee NIC and student loan repayments) will move up the order of priority and gain preferential status, which places the Crown liability above that of a lenders floating charge security.

This change, when combined with the fact that due to the COVID pandemic a number of business have taken advantage of the ability to defer tax payments (which are now at a historic high), may well lead to the dissipation of available funds in an insolvency to the preferential creditors only, thus leaving the lender exposed.

As a result of the change, UK Tax authorities (HMRC) will move up the creditor hierarchy in (specifically) English insolvency proceedings and will rank ahead of floating charge holders and unsecured creditor claims.

Peter Cromarty, managing director at Corporate and Commercial Business Solutions Ltd, said: “In these uncertain times, this change in legislation has an impact on many people, particularly business owners, bankers and accountants. “For business owners, and more specifically those who have provided personal guarantees (PGs) to lenders or suppliers, the change will mean that with HMRC being ‘preferred’ then those that the owner has likely pledged a PG too will be less likely to get a distribution out of the proceeds of the sale of the assets under the insolvency process.

“Bankers will hold charges under their debenture (fixed and floating charges) which will mean some of their security will be a floating charge. Therefore, for things like overdrafts, HMRC will jump ahead of them in any insolvency procedure, which will put a greater reliance on any PGs taken.”

Peter added: “And finally, for accountants, many of their clients will be affected by this if the spectre of insolvency is looming. Spotting the signs for this may assist their client being significantly affected personally by this.”

Corporate and Commercial Business Solutions Ltd are keen to inform and empower affected professionals to ensure they fully understand their options. Seeking professional advice early, considering aspects such as the impact of the security structure of the business or client or the viability of the company refinancing itself to redistribute business assets rather than director’s personal assets, will prove invaluable.

This was posted in Bdaily's Members' News section by Tori Lynn .

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