The English Court has, for the first time, handed down judgment on whether the liquidation stay prevents the Financial Conduct Authority (the "FCA") from issuing a Warning Notice under sections 92 and 126 of the Financial Services and Markets Act 2000 ("FSMA") without first seeking leave from the Court.

Executive summary

On a UK company’s insolvency, the UK tax authority (HMRC) will become a preferential creditor in respect of certain unpaid taxes (Crown Preference) with effect from 1 December 2020. Despite lobbying against the move (including in light of the COVID-19 pandemic), the UK government has persisted with the change, perhaps in an attempt to shore up its tax take.

The reform in context

The Golden Globe Award-winning Netflix series is not the only ‘Crown’ returning prior to Christmas 2020. HMRC’s preferential creditor status is also being restored on 1 December 2020.

Ongoing uncertainties about the COVID-19 pandemic, coupled with the looming deadline of Brexit, mean businesses and owners are in for a tough ride over the next few months, possibly much longer if the UK continues to face restrictions.

From 1 December 2020 new changes to the priority rules in insolvency will have a real impact on the recoveries achieved by secured creditors on the insolvency of a debtor. These new rules give HMRC priority above floating charge holders and ordinary unsecured creditors in relation to tax collected by an insolvent company from third parties, such as VAT, PAYE income tax and NICs.

Almost 20 years ago the Government decided to abolish Crown Preference bringing it into step with other western jurisdictions such as Germany and Australia. It was considered at the time "inequitable" to elevate the public purse above ordinary unsecured creditors for whom the impact was potentially far greater.

Astonishingly, in the midst of a global pandemic and a looming "No Deal" Brexit, absent a dramatic last minute "U-turn" by the Government (let's face it, it wouldn’t be the first !), Crown Preference will return with effect from December 1st 2020.

There has been much mention in the press in recent times about the amount of allegedly incorrect or fraudulent claims made by employers under the Government’s Coronavirus Job Retention Scheme (“CJRS”) (furlough scheme).

The re-introduction of Crown preference and the resulting change in the order of priority of creditors on insolvency was announced as part of the Autumn budget in 2018, way before anyone had heard of coronavirus or COVID-19, and was originally due to come into force on 6 April 2020. It was delayed until 1 December 2020 in terms of the 2020 budget which was presented to Parliament on 11 March 2020, the same day as the World Health Organization declared the outbreak of COVID-19 a pandemic.

EXECUTIVE SUMMARY

The Insolvency Service has released the latest insolvency statistics (to September 2020). 

These figures are particularly interesting as they shed light on the effects of the various changes to the insolvency landscape that have occurred since Covid-19 started to affect the economy.

Since March 2020, we have seen the introduction of the Corporate Insolvency & Governance Act ("CIGA"), Government schemes and lockdowns of various sizes, shapes and geographical restrictions.