The government on the 11th July 2019 published their draft Finance Bill for 2019-2020. Contained within same provisions and changes to reinstate HMRC’s status upon insolvency of a business.
The provisions state that HMRC will return to preferential status for debts arising from VAT and any “relevant deduction” to include PAYE, Employee NICs, Student loan deduction and Construction Industry Scheme Deduction. There will also be no carve out for pre-6 April 2020 debts meaning increasing uncertainty for existing floating charge-holders on insolvencies that commence on or after this date regardless of when the lending was made available.
Importantly, also is that the amendment will also apply to personal insolvency, in circumstances where an individual’s debts include VAT or a “relevant deduction”.
At present The Insolvency (Northern Ireland) Order 1989 sets out the order by which creditors are due to be repaid. This reorganisation of the priority list means that HMRC will rank in priority to holders of floating charges and any other non-preferential unsecured creditors. At This Time all HMRC debt is unsecured, however, with the planned changes HMRC will become a secondary preferential creditor. Any claim amount will not be capped and there is no time limit on “certain tax debts” eligible for preferential status.
So the question results in what does this mean in practice? There is definitely swing in government circles towards the reintroduction of Crown preference in formal insolvency situations. The deep uncertainty for existing floating charge holders on insolvencies that commence on or after this date is clearly a worry for those individuals/organisations.
Consultation on draft legislation will continue until 5 September 2019 with an implementation date of 6 April 2020.
O’Reilly Stewart can assist in providing advices as to the potential effects of Crown preference and what this means to those providing lending facilities whom it is clear will likely require further protection. Contact our Insolvency team should you wish to discuss how to protect your business.
Contact Christina at christina.lishman@oreillystewart.com for further advice.