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The Prescribed Part Order.

What is the Prescribed Part Order?

The company requirements of the Enterprise Act 2002 came into force on September 15th, 2003. The ranking of how creditors are paid changed. The prescribed part order impacted on what monies became available?   As a company, however, payment is made at the end of an insolvency process.

Insolvency Act 1986 (Prescribed Part) Order 2003 – Statutory Instrument 2003/2097

The “crown” in the UK ceased as preferential creditors. Meaning, the VAT and PAYE liabilities were unsecured in an insolvency effective September 15th 2003. Doing this was to give up the crown right of preferential ranking in an insolvency process. With the introduction of the Prescribed Part Order. Unsecured creditors have a fairer chance of receiving a distribution.

However, had the government do nothing at the time, other than abolishing “crown preference”. Then the company bankers, if holding a debenture (ranking next in order of repayment), would absorb the distribution from the insolvency.

The legislature had to “prescribe a part” of the money, so the banks did not absorb the cash. So the changes protected the fund available to creditors by the Prescribed Part Order, so a dividend may exist for distribution to unsecured creditors.

For further help, contact HBG Advisory on 0330 056 3120 and view The TeamAt HBG Advisory.

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