Preferential creditors meaning

HMRC guidance on compromises using Part 26 schemes and Part 26A restructuring plans In corporate insolvencies, HMRC commonly ranks as a secondary preferential and/or unsecured creditor (see Practice Note: Waterfall of payments—a comparative guide), a status that often serves as the relevant comparator or alternative to a Part 26 scheme or a Part 26A restructuring plan. On 1 November 2023, HMRC issued guidance covering compromises under Part 26 schemes (see: Schemes of arrangement—overview) and Part 26A restructuring plans (see: Restructuring plan—overview) (see: HMRC publishes guidance on using debt management schemes to restructure finances—LNB News 15/11/2023 13). Practitioners should take account of this guidance whenever a proposed scheme/plan includes HMRC as a creditor. HMRC will only back a restructuring where it considers there is a realistic prospect of success. If HMRC does not consider success realistic, it will engage with the scheme/plan proponent to explore other means of repaying HMRC’s debt, which may involve a formal insolvency process. The debtor must have submitted all outstanding...

Re Avanti Communications Ltd [2023] EWHC 940 (Ch) This marks the first substantial judgment on the divide between fixed and floating charges since the House of Lords’ landmark ruling in Re Spectrum Plus [2005] UKHL 41, which reclassified an apparent fixed charge over book debts as floating because the chargor could freely deploy the charged assets and the security holder therefore lacked the requisite control to constitute a fixed charge. The designation of security as ‘fixed’ or ‘floating’ under English law now carries even greater weight given HMRC (the UK tax authority) ranks as a preferential creditor for certain taxes in insolvency—ie those taxes sit behind fixed charge realisations but ahead of floating charge realisations. That characterisation had a decisive effect on the order of payments in Avanti’s administration: as the charge was properly treated as fixed, the secured creditors recovered in full; had it instead been treated as floating, part of the proceeds would have been payable to HMRC (as preferential creditor) and to unsecured creditors up to...

Hinton and another (as joint administrators of Kession Capital Ltd) v KVB Consultants Ltd (Company Number 08723839) and others [2026] EWHC 785 (Ch) What was the background? Kession Capital Ltd’s joint administrators (the company being in administration) sought directions from the High Court, before Deputy ICC Judge Curl KC, invoking IA 1986, Sch B1, paras 53, 55 and 63. The step followed creditors’ rejection of proposals put forward under IA 1986, Sch B1, para 49(1). They asked the court to ‘hold the ring’ by keeping the company in administration until a Supreme Court appeal on another issue was determined, with a further meeting of creditors thereafter. Twenty‑six unconnected judgment creditors opposed the application. When administration commenced, the company was insolvent and not trading. Its move into administration came after enforcement action by a substantial judgment creditor, Mr Venkiteswaran. The administrators’ proposals adopted the objective in IA 1986, Sch B1, para 3(1)(c)—realisation for distribution to secured or preferential creditors—relying upon a preferential claim of £800 owed to the director...

Re Avanti Communications Ltd (in administration) [2023] EWHC 940 (Ch) What are the practical implications of this case? Avanti is poised to carry three major consequences for restructuring lawyers, insolvency litigators, and finance lawyers. First, the ruling lowers the bar for taking fixed security, notably over fixed assets. It confirms that the Spectrum analysis is nuanced, and that absolute control is not a prerequisite for a fixed charge. The assets in Avanti were ‘fixed’ income‑producing capital assets rather than receivables or stock‑in‑trade, leaving charges over such property, in particular, less susceptible to recharacterisation. Second, although the facility documentation was intricate, it drew on Loan Market Association (LMA) templates. Those contracts included permissions for the debtor to dispose of assets where (among other conditions) proceeds were paid through a creditor ‘waterfall’, or where assets had become obsolete. Avanti confirms that these permissions, and other provisions that cede a measure of control back to the debtor, do not automatically reclassify a fixed charge as floating. Third, if it is easier...

Modifications to company voluntary arrangements (CVAs) There is limited statutory direction on how CVA modifications should be approached. Some direction appears in Statements of Insolvency Practice (SIP) 3.2. Alterations to a CVA proposal are acceptable, so long as they do not: reshape the CVA so extensively that it is no longer a CVA at all (for example, a change compelling the company to enter administration would be impermissible) restrict, vary, or diminish a secured creditor’s right to realise its security without that creditor’s express consent reorder distributions so that any preferential creditor loses priority over non-preferential creditors without that creditor’s express consent upset the rule that all preferential creditors share dividends pari passu without the disadvantaged creditor’s express consent Amendments affecting preferential creditors cannot be approved merely because a majority of preferential creditors agree; each affected preferential creditor must consent. Creditors or members may propose modifications before the proposal is considered...

Liquidation Following enforcement of security by fixed charge creditors for their own benefit, the order of distributions in a winding up is: if liquidation commences within 12 weeks of a moratorium, any unpaid moratorium debts and ‘priority pre‑moratorium debts’ to which no payment holiday applied during the moratorium expenses properly incurred in the winding up (including the liquidator’s remuneration) ordinary preferential debts secondary preferential debts the prescribed part for unsecured creditors (where not disapplied) debts secured by floating charges unsecured debts statutory interest postponed debts (i.e. non‑provable liabilities) return of any surplus to members (subject to adjustment between members) For further details, see Practice Note: Waterfall of payments in liquidation...

Advantages and disadvantages of taking a floating as opposed to a fixed charge This Practice Note examines the advantages and disadvantages of taking a floating, rather than a fixed, charge, mainly from the chargee’s perspective, and why understanding the trade-offs is important. In secured lending, it is common for lenders to place fixed charges over non-variable assets of a company and a floating charge across the balance. This blended approach enables a lender to maximise the key benefits offered by each form of security while achieving coverage across the asset base. Fixed charges, where they can be obtained, usually produce better recoveries on enforcement. By contrast, holding a qualifying floating charge allows a lender to appoint an administrator out of court and to take security over a broader range of assets. Even so, the exact configuration of security over a company’s assets is often negotiated with the borrower. A borrower may, in particular, resist the level of control over its assets that...

(made pursuant to Part 26A of the Companies Act 2006) Between [ insert name of company ] and its Creditors/Members (as defined in the Restructuring Plan) Dated [ insert date ] 1 Definitions and Interpretation Within the Restructuring Plan, save where the context dictates otherwise or it is expressly stated to the contrary, the following terms shall bear these meanings: Act — refers to the Companies Act 2006 of Great Britain; Admissible Interest — means interest stipulated by a contract, any applicable statute, or other applicable law or judgement; Admitted Claim — the remaining balance, if any, owed by the Company to a Creditor/Member under clause 12.1, after applying set-off in accordance with clause 13.1; Agreed Claim — the sum assessed as payable by the Company in respect of a Creditor’s/Member’s Claim under clause 10; Available Distributable Amount — the amount available for payment by the Company to its Creditors/Members under clause 15; Board — the Company’s board of...

(pursuant to Part 26 of the Companies Act 2006 of Great Britain) Between [ insert name of company ] and its Scheme Creditors (as defined in the Scheme of Arrangement). Dated [ insert date ] 1 Definitions and Interpretation For the purposes of the Scheme, unless the context dictates otherwise or an express provision states differently, the following terms have these meanings: Act – refers to the Companies Act 2006 of Great Britain; Admissible Interest – denotes any interest provided for under a contract, any relevant statute, or any other applicable law or judgment; Admitted Claim – signifies the balance, if any, remaining due from the Company to a Scheme Creditor under clause 10.1 after applying set-off pursuant to clause 11.1; Agreed Claim – the amount determined as owed by the Company in respect of a Scheme Creditor’s Claim in accordance with clause 8; Available Distributable Amount – the sum available for payment by the Company to its Scheme Creditors...