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Then come preferential creditors, such as contributions to pension schemes, wages and holiday pay to employees will be paid next, plus HMRC as a ‘secondary preferential creditor’ for unpaid VAT, PAYE and NIC.
This is followed by the ‘prescribed part’; this is a ring-fenced pool of realisations under the floating charge that is set-aside for unsecured creditors. This will dilute the realisations available for distribution to the floating chargeholder.
The next to receive any money on insolvency will be the holders of floating charges and then unsecured creditors. The company’s shareholders are paid last.
This outline of priority shows why it matters if a charge anticipated as fixed is re-designated as floating, as the realisations available to the chargeholder will be diluted by the amount payable as the prescribed part.
[See ‘Enterprise Act’, ‘Covenant’, ‘Debenture’, ‘Liquidation’, Qualifying Floating Chargeholder’, ‘Officeholder’, ‘Administration’, ‘Land Registry’, ‘Shareholder’, ‘Floating Charge’, ‘VAT’, ‘PAYE’, ‘NIC’, ‘HMRC’ and ‘Fixed Charge’.]
A Qualifying Floating Chargeholder (QFC) is a person who, in respect of a company’s property, holds one or more debentures (loan documents/mortgages) of the company secured by a ‘qualifying floating charge’, which relates to the whole or substantially the whole of the company’s property.
A qualifying floating charge is one that does not attach to a specific asset or property (such as a ‘fixed charge’, which is over a particular asset – like the mortgage on a residential home), but ‘floats’ over assets that may change over the course of time. Examples of this are stock, debtors or a director’s loan account).
A floating charge enables the holder to appoint an Administrator (if the charge was registered after the Enterprise Act – the effective date is 15 September 2003) or an Administrative Receiver (if the floating charge was registered before the above date) under the Insolvency Act 1986 without the need for an order of the court.
When a Liquidator realises (sells, raising cash from the sale for the creditors) property, the moneys received rank in a particular order. Money from assets subject to fixed charges will get paid out first, even before the payment of the
