Since the cases of Avanti and UKCloud we have seen more arguments around the classification of a charge – is a typical floating charge asset actually subject to a fixed charge? Is a fixed charge really floating? Much depends on the control the charge holder asserts, but we have seen some novel claims. The position can be quite grey leaving officeholders having to work out how to allocate realisations.
Classifying realisations as fixed charge realisations, means they are not available to preferential creditors nor included as part of the prescribed part. Conversely, if realisations are classified as floating charge secured creditors move down the rankings. It is easy to see where the tensions lie, and when the numbers are significant or there is a particularly aggressive creditor an officeholder can find they are caught squarely in the middle.
How and what should they do? And who is going to pay the costs of untangling the position?
Perhaps this is where the new revised SIP 14 will assist. The revised SIP has been published for consultation with a request for replies by 5 September.
A copy of the consultation is available here, together with a compare version of the previous SIP and a list of the consultation questions (republished from the IPA’s website). The SIP was last published in 1999 and one of the many things it does is extend the SIP to cover all types of insolvency, not just receiverships as was previously the case.
As drafted the onus is on an officeholder to decide on classification, bearing in mind the interests of other creditors (with legal advice if needed) and it is for officeholders to apportion sale proceeds and costs appropriately. This is quite different from the previous version of SIP 14 and reflects (to a degree) what happens in practice already. However given the “shades of grey” that have started to appear since Avanti and UKCloud it might be helpful for officeholders to reflect on the draft SIP 14 in light of their experiences and respond to the questions raised as appropriate.
SIP 14 deals with “responsibilities to preferential creditors” – which includes HMRC as we know – but at the same time impacts the position of secured creditors. Being two of the largest creditors in most insolvencies, finding the balance between those competing creditors bearing in mind an officeholders role to act in the interests of creditors as a whole, is not always an easy task.
