The maximum prescribed part will increase from £600,000 to £800,000, after an amendment was made to the Insolvency Act 1986. This change comes into effect from Monday 6 April 2020.
The change won’t apply to floating charges created before Monday 6 April 2020 (a ‘grandfathered floating charge’) if one hasn’t been created after this date that ranks equally with, or in priority to, the grandfathered floating charge.
What’s happening
The explanatory note to the Amendment Order explains that the increase to the cap reflects the increase in inflation since the prescribed part was introduced in 2003. It also anticipates that in insolvencies where the current cap on the prescribed part is reached, the new cap will often be reached too.
This indicates that the government considers the change to be one made in line with the original purpose of the prescribed part: to improve the typical return to unsecured creditors who may not otherwise receive any return on the debt due to them.
How this affects you
Ultimately, the increase to the cap may see unsecured creditors benefit from an increased amount being made available for distribution to them under the prescribed part. This of course is subject to the restoration of HMRC’s preferential status. Both measures are likely to see reduced recoveries to lenders under their floating charge.
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