During the October 2018 Budget, the Chancellor announced that he would be restoring some tax debts to preferential status in corporate insolvencies which begin after 6 April 2020. There had been no consultation on this proposal, and no prior warning.
R3, The Trade Association for Business Recovery Professionals, strongly oppose the proposed changes commenting “The Government’s decision to push ahead with the return of ‘Crown Preference’ is frustrating and misguided. It’s a short-sighted plan for a quick cash grab for the Treasury at the expense of long-term damage to the UK’s enterprise and business rescue culture, and to businesses’ access to finance. The Government could undo fifteen years’ worth of progress on building an enterprise culture.
“More money back to the Treasury increases the impact of insolvency on everyone else. It’s not just lenders who will be worse off, but an insolvent company’s pension scheme and trade creditors, too.
“The Government’s plan will make lending to a business on a ‘floating charge’ basis much more risky. ‘Floating charge’ lending includes common types of lending, like asset-based lending. If things go wrong, a lender won’t get their money back – it’ll go the Treasury instead. It’s simple: the greater the risk of lending, the less lending there is likely to be. This makes it harder to fund rescues, and limits lending options for healthy businesses.
“‘Floating charge’ lending is useful for expanding stock levels. It’s often used in the retail sector – which could do without this particular blow – but, with Brexit looming, businesses across the UK are having to buy extra stock as they prepare for the unknown. The timing of this proposal could not be worse. Little thought seems to have gone into how many businesses would fail if their lending facilities were withdrawn or reduced.”
The Government has now published a brief consultation document on its proposals and R3 is working hard to lobby the views of Corporate Recovery Professionals in an effort to affect a U-turn on these damaging proposals.