Back to the Future for Preferential Creditors
As Brexit approaches it is clear this Government is prepared to take us back in time in more ways than one!
It was a surprise in the budget statement to see the return of the preferential Crown debt for taxes and NIC deducted from employees and for VAT. The question is how far back will preferential status go and how will it impact on other categories of creditor? We know it looks likely to be implemented from the beginning of the 2020 tax year, (and whilst we are at it, why don’t we widen the net of preferential status to include customer deposits? They are as much a reluctant creditor in a failure as HMRC - in fact, it is easy to say all creditors are reluctant to be there!)
So what could the affect be?
HMRC may become lazy in their debt collection allowing debts to worsen, making failure even more inevitable when the debt collector calls. HMRC will know that they get their hands on any funds before banks with floating charges and the trade creditors. Could this make lenders more reluctant to lend to business? Certainly if they do, they will be well aware of the risk and even more likely to demand personal guarantees.Trade creditors may take the same line. It is all about the risk and the Government using their own rules to improve their own position just makes things worse for everyone else. Consequently, trade creditors could be more reluctant to support a turnaround because they could be waiting years in a CVA to see any funds, whilst the Crown gets paid ahead of them.