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expenses of the insolvent estate, which will include any fees due to the Liquidator or Administrator.
If there are two or more charges in place the one created first (or for certain assets that need to be registered on a specialist register such as the Land Registry, the one registered first) will rank first.
Then comes the fees, expenses and disbursements of the officeholder.
Next 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 but 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.
Qualifying Floating Chargeholders must also receive warning if the directors of a company are considering commencing voluntary Liquidation proceedings. They will get a minimum of five days notice (which the chargeholder can waive), as they may want to consider their options and potentially appoint an Administrator, rather than try their luck under a voluntary Liquidation.
[See ‘Liquidation’, Qualifying Floating Charge’, ‘Chargeholder’, ‘Enterprise Act’, ‘Administration’, ‘Administrative Receiver’, ‘VAT’, ‘PAYE’, ‘NIC’, ‘HMRC’ and ‘Fixed Charge’.]
A ‘qualifying insolvency event’ is a Liquidation or Administration, which gives rise to the duty to notify certain parties as to the state of the company.
The Pension Protection Fund has issued a list of what is regarded as a ‘qualifying insolvency event’. It is:
