We understand that the monitors from at least one regulatory body are requiring the inclusion of explanatory information about the Prescribed Part provisions in the information provided to a section 98 meeting and in a rule 4.49 report even in cases where there is no indebtedness to the qualifying floating chargeholder. As a result, taking this one stage further to ensure that you always make disclosure we suggest that whenever there is a floating charge, including in cases where it is not a Qualifying Floating Charge, you always include some standard wording explaining what the Prescribed Part provisions before then going on to explain how those provisions apply to the specific case you are dealing with. That disclosure should be made in the director’s report in CVLs, say as part of the explanation of the contents of the statement of affairs, in the proposals in Administrations, and as part of the first report to creditors in compulsory liquidations.
The following is some suggested standard wording:
“There are provisions of the insolvency legislation that require a liquidator/an administrator to set aside a percentage of a company’s assets for the benefit of the unsecured creditors in cases where the company gave a “qualifying floating charge” over its assets to a lender on or after 15 September 2003. This is known as the “prescribed part of the net property.” A company’s net property is that left after paying the preferential creditors, but before paying the lender who holds a floating charge. A liquidator/an administrator has to set aside:
• 50% of the first £10,000 of the net property; and
• 20% of the remaining net property up to a maximum of £600,000.”
In cases where there is no QFC you should then go on to say “There is no qualifying floating charge in this case so the prescribed part provisions do not apply.”
In cases where there is a QFC you should go on to say “The estimated net property in this case is £XX and the prescribed part is currently estimated at £YY, but creditors should note that the costs and expenses of these proceedings will be deducted before the net property is calculated so that both the net property and any prescribed part is likely to be significantly lower.”
