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The "Prescribed Part" - What is it"?



“Crown” liabilities, such as for VAT and PAYE, were paid ahead of unsecured creditors until 15th September 2003


With the implementation of the terms of the Enterprise Act 2002 in September 2003, the crown gave up their right to be preferential creditors. Consequently, in any subsequent insolvency, liabilities such as VAT and PAYE are now unsecured claims.


The government’s intention in making these changes, giving up their right of priority, was to level the playing field between the different types of creditors.


Had only that aspect of the law been changed, in most instances, the additional funds made available would have gone to the company’s bankers under their debenture (floating charge) rather than to the general, unsecured creditors.


Therefore it was decided to "prescribe a part" of those funds, that would have gone to the banks (or other floating charge holder), as not being available to them. Instead this "prescribed part" is to be distributed to unsecured creditors.


Calculation of the “prescribed part”


The total amount available for distribution (after paying off secured creditors and preferential creditors) is divided into two parts.

  • The “prescribed part”, which is made available to unsecured creditors.
  • The remainder which is available for the floating charge holder.

The "prescribed part" is calculated as the sum of:

  • 50% of the first £10,000 of the total available and
  • 20% of any further funds available.

The amount that can be distributed as the prescribed part is subject to a statutory maximum of £600,000.




For unsecured creditors to benefit from this provision both the insolvency must have commenced and the debenture have been created after 15th September 2003.



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