2020 ha sido un año atípico. La alerta sanitaria mundial provocada por la expansión del COVID-19 y la consecuente declaración del estado de alarma en España en marzo de 2020 llevaron a una vorágine legislativa sin precedentes. En este contexto, las empresas se encuentran inmersas en un escenario incierto en el que la toma de decisiones juega un papel clave para la viabilidad futura del negocio.

The facts of this case were somewhat unusual although it serves as a reminder of the principles involved in the trading of a business by a trustee in bankruptcy.

Background

Timeline for Government’s extended measures 

A basic tenet of bankruptcy law, premised on the legal separateness of a debtor prior to filing for bankruptcy and the estate created upon a bankruptcy filing, is that prepetition debts are generally treated differently than debts incurred by the estate, which are generally treated as priority administrative expenses. However, this seemingly straightforward principle is sometimes difficult to apply in cases where a debt technically "arose" or "was incurred" prepetition, but does not become payable until sometime during the bankruptcy case.

Speed read: Rachel Clark considers whether draft new regulations requiring scrutiny of pre-pack sales to connected parties will be enough to prevent fraud and restore confidence in the process.

Once likened to sustaining ‘Frankenstein monsters’, the use of ‘pre-packs’ is controversial.

Whilst not defined by statute, the term ‘pre-pack’ is commonly used to mean an arrangement to sell all or a substantial part of a business prior to the company entering administration, with the administrator then completing the sale.

After a year in which numerous businesses have relied on various forms of government support to stay afloat, many will be hoping that 2021 offers the chance to emerge from this period and resume some degree of normal trading. Certainly, the coming year will be make-or-break time for those businesses that have been most impacted by the pandemic – and as government assistance is wound back, the demand for working capital funding is likely to be high.

In a widely criticised move, the UK tax authority, HMRC, has become a second ranking preferential creditor regarding certain taxes in insolvency proceedings commenced on or after 1 December 2020.

This means that in the new insolvency waterfall, HMRC ranks behind the claims of holders of fixed charges and first ranking preferential creditors (most notably employees) but ahead of floating charge holders' claims and unsecured creditors.

Now that HMRC has become a preferential creditor for certain debts, other creditors – such as suppliers – could lose out.

Under the Finance Act 2020, from 1 December 2020, HMRC became a preferential creditor in insolvency proceedings. This may have significant impact on what’s left for other creditors.

In Short

The Situation: With effect from 1 December 2020, Her Majesty's Revenue and Customs ("HMRC") ranks ahead of floating charge holders and unsecured creditors with respect to recovering certain pre-insolvency taxes from an insolvent business (Crown preference). Directors can also now incur personal liability for the unpaid taxes of an insolvent company where they are involved in tax avoidance, evasion or phoenixism.

Alongside the permanent reforms to English insolvency law introduced by the Corporate Insolvency and Governance Act 2020, the government introduced a temporary suspension of certain provisions of the Insolvency Act 1986 (the IA) to address the economic turbulence caused by the COVID-19 pandemic.