Vol 5 (2008) - Issue 4

Article preview

Prescribed Part and Chargee Shortfalls

In recent months two cases have come before the Chancery Division which have dealt with the question of whether holders of floating charges may prove for their shortfall in the prescribed part under section 176A of the Insolvency Act 1986. The first of these was Permacell Finesse Limited (In Liquidation) (2007) (Unreported), where the applicant Liquidators of Permacell sought directions in relation to section 176A; no submissions were made on behalf of the respondent charge holder. The second case was Thornriley and another v HMRC and Harris N. A. [2008] EWHC 124 (D), where the applicants were the administrators of companies over whom the second respondent held fixed and floating charges. The Court heard submissions from both the applicants and the respondents.

Permacell Finesse Limited

This case came before His Honour Judge Purle QC in the Chancery Division of the Birmingham District Registry and judgement was handed down on 30 November 2007. The Liquidators of Permacell Finance Limited (‘Permacell’) sought directions on the following matter:
‘Whether Synseal Holdings Limited [‘Synseal’], a secured creditor of [Permacell] should be permitted to participate in the Prescribed Part (as defined by section 176A of the Insolvency Act 1986) in respect of the shortfall under its floating charge.’

Synseal indicated that it did not wish to incur the costs of representation at the hearing and was content to rely upon submissions made on behalf of the Liquidators.

Background

On 4 November 2005 Permacell created a floating charge in favour of Synseal. On 18 March 2006, the future Liquidators of Permacell were appointed as administrators by Synseal in its capacity as qualifying floating chargeholder. On 2 March 2007 Permacell moved into creditors’ voluntary liquidation by Notice filed at Companies’ House pursuant to paragraph 83 of Schedule B1 of the Insolvency Act 1986.

As at the date of administration, Synseal was owed GBP 2,307,000. During the course of the administration, all of Permacell’s assets were realised. Out of those realisations, GBP 1,188,150 was distributed to Synseal, leaving a shortfall of GBP 918,850 under the floating charge. The prescribed part set aside was GBP 379,000. Unsecured creditors (not including Synseal in respect of its shortfall) were owed approximately GBP 3,104,000.

The legislation

The legislation which the Court was required to consider was section 176A of the Insolvency Act 1986.