The vast majority of UK taxpayers pay what they owe in full and on time. Her Majesty’s Revenues and Customs (HMRC) thinks that a persistent minority choose not to pay which provides an undeserved advantage to those who are wilfully seeking to play the system, and creates costs which are ultimately borne by the compliant majority.

In a market study, called “The market for corporate insolvency practitioners,” published on 24 June 2010 The Office of Fair Trading (OFT), proposed extensive reforms of the current corporate insolvency regulatory regime. After an eight-month study the OFT believes that reforms are needed to build market trust and create a regime that works in the best interests of creditors as a whole.

The Finance Act 2020 received Royal Assent today (22 July), confirming the anticipated but opposed intention to restore HMRC as a secondary preferential creditor on insolvency.

From 1 December 2020 HMRC’s claim will sit ahead of floating charge holders and unsecured creditors reducing the monies available for distribution to both when a corporate files for insolvency.

The proposal to reinstate Crown preference in insolvency has met resistance from all angles; the insolvency profession, turnaround experts, accountants, lawyers and funders. But despite HMRC’s bold statement in its consultation paper that the re-introduction of Crown preference will have little impact on funders, it is clear following a discussion with lenders that it may well have a far wider impact on existing and new business, business rescue and the economy in general than HMRC believes.

This quick guide summarises the duties that directors of companies incorporated in England and Wales are subject to, and how those duties change when the company is insolvent or at risk of being insolvent. It also provides an overview of the personal risk to directors when the company is in financial difficulty.

This note is intended as an overview and should not be relied on as legal advice. Should you require legal advice in relation to your specific circumstances, please contact the Restructuring & Insolvency team members whose contact details are at the end of this note.

Crown prerogative dates back to the Magna Carta entitling the monarch to absolute priority for revenue related debt. Come 6 April 2020 will we really be heading back to feudal times and 1215?

The proposal to reinstate Crown preference was announced as part of the Autumn Budget last year and came as a surprise to many. The expected consultation paper published by HMRC this week seeks the views of individuals, shareholders, directors, lenders, companies and insolvency practitioners on the proposal to reinstate Crown preference in part.

Directors' Duties and Related Matters, in the Context of COVID-19

EMEA UK 27 May 2020

Scope And Purpose of This Note

This note summarises the duties that directors of companies incorporated in England and Wales are subject to.

This note explains those duties, and matters that directors should consider in relation to those duties, in the context of the developing coronavirus disease 2019 (COVID-19), commonly known as the "coronavirus" or simply, COVID-19, pandemic.

Following the Enterprise Act 2002, the preferential status which HMRC had enjoyed in an insolvency was abolished, rendering HMRC the same as any other unsecured creditor. The effect of this was to swell the pot of assets available to be applied to all unsecured creditor claims.

Philip Hammond announced in Monday’s budget that HMRC’s preferential status is to be restored. What does this mean for HMRC and unsecured creditors?

The Budget provided that:

The Insolvency Service has released statistics on the level of insolvencies in April 2020. This allows us to take a look at the immediate effect of insolvencies post-lockdown compared with those before.

Statistics

The benefit of hindsight is a wonderful thing. The benefits of a fully functional crystal ball to see the future would be much better. All pensions lawyers (and scheme actuaries) would add it to their gift list!

I will attempt to take a look at the pensions related announcements in Monday’s budget from a future (perhaps optimistic) vantage point.

So here we are, nearing the end of 2023…

1. Dashboards