Prescriptive prose pertaining to prescribed part

Tenon Recovery directors David Thorniley and Peter Forsey recently applied to the Court for direction in respect of the “prescribed part”. They required clarification with regards to the standing of a secured creditor lodging a claim against the prescribed part for any shortfall under its security.

The prescribed part was introduced by the Enterprise Act 2002. The Act recognised that the abolition of Crown preference would significantly reduce the value of preferential debt and could lead to a windfall for floating charge holders. As a consequence a ring-fenced fund would be set aside from floating charge realisations for distribution to unsecured creditors. Unfortunately the legislation did not provide for the treatment of any shortfall element of a charge holder’s debt.

The judge in Thorniley v HMRC (2008) ruled that secured creditors cannot participate in the prescribed part of floating charge realisations for the shortfall in their security.

Whilst clearly not good news for holders of charged security the decision crystallises what has been a point of uncertainty since the introduction of the Enterprise Act.

Should you wish to discuss this, or any other deal you may be involved with, please do not hesitate to contact me.

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