Restructuring coalition building against HMRC ‘preferential status’

The financial, legal and business restructuring industries rarely see eye-to-eye on every development they face.


Restructuring coalition building against HMRC ‘preferential status’

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So when eleven of the most influential bodies across these sectors actively join forces to send a strong, single message with a unified voice then it’s worth paying attention.

 

The group – including R3, the professional insolvency trade body, the City of London Law Society and the Chartered Institute of Credit Management – have written to the Chancellor, Sajid Javid, to signal their opposition to proposed changes to HMRC’s creditor status in insolvency cases. 

 

The crux of their objections is that it will make it harder to rescue and restructure companies in distress, reduce access to finance for small businesses and enterprises, increase the harm done to other businesses in insolvency cases and could ultimately result in lower funds being recouped for the Treasury. 

 

“While we understand that the government wishes to increase the value of taxes repaid in the event of insolvency, there’s a serious risk that the wider costs of the government’s approach will outweigh any expected benefit,” they write. 

 

“This proposed policy would reverse successive governments’ attempts to encourage a culture of business rescue in the UK, and would undermine the government’s recent work to strengthen the UK’s insolvency and restructuring framework. 

 

“The proposal may have a significant and negative impact on access to finance in the UK, and will increase the impact of corporate insolvencies on pension schemes, trade creditors, consumers and the wider business community.”

 

From April 2020, certain taxes owed by insolvent companies – VAT, PAYE and employee NICs will be paid to HMRC ahead of floating charge holders and other unsecured creditors including the company’s pension scheme and its suppliers. 

 

Peter Walton, Professor of insolvency law at Wolverhampton Law School and one of the signatories of the letter said: “Research carried out during the time when HMRC was last paid ahead of unsecured creditors showed the policy made it harder to rescue companies. There’s a real risk this will happen again if the policy is reintroduced.”

 

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