Insolvency payout change could make it harder for Fylde businesses to get loans, says expert

Government plans to repay HMRC ahead of pension schemes, trade creditors and lenders in insolvency cases are a ‘quick cash grab for the Treasury’ that would be damaging for business, a Lancashire insolvency expert said.

Tuesday, 5th March 2019, 9:26 am
Updated Tuesday, 5th March 2019, 10:32 am
Paul Barber

Paul Barber said the proposals, which would put HMRC closer to the front of queue for payment if a business went insolvent, would mean that small businesses were less likely to get their money back and could deter banks from lending.

Paul, who is the North West chair of the insolvency trade body R3 and a partner at Begbies Traynor in Preston, said: “This is a short-sighted plan that could cause long-term damage to the UK’s enterprise and business rescue culture.

"More money back to the Treasury increases the impact of insolvency on everyone else. It will make lending to a business on a ‘floating charge’ basis much more risky. If things go wrong, a lender won’t get their money back – it’ll go to the Treasury instead.

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"Floating charge’ lending is useful for expanding stock levels. It’s often used in the retail sector – which could do without this particular blow. With Brexit looming, businesses across the UK are having to buy extra stock as they prepare for the unknown.

"The timing of this proposal could not be worse. Little thought seems to have gone into how many businesses would fail if their lending facilities were withdrawn or reduced.”

"In insolvency procedures, creditors are repaid according to a strict hierarchy. The lower a creditor is down the order, the less of their money – if anything – they are likely to see back.

"The proposal would mean that for some tax debts including PAYE, employee NICs, and VAT, HMRC would be third in the queue – after ‘fixed charge’ creditors such as mortgage lenders, and the costs of the insolvency process, but ahead of unsecured lenders, pension schemes, customers and trade creditors."

He added that effectively the move would restore the ’preferential status’ HMRC enjoyed before the 2002 Enterprise Act, when it was agreed that HMRC would move down the payment queue to help create an enterprise culture.