Spectrum decision could affect SME lending

A landmark insolvency ruling by the House of Lords yesterday could mean SMEs
face more difficulty getting loans.

The Lords decision on the Spectrum case, which ruled that a certain kind of
security held by banks ranked lower in preference in insolvency proceedings to
claims from preferential creditors (in this case the Inland Revenue and others),
could mean banks change their lending practices in order to acquire greater
security on loans.

That could mean directors would have to give personal guarantees to acquire
loans, The Times reports, or face not securing credit.

Yesterday’s decision was critical for insolvency practitioners, resolving a
long-standing dispute about the primacy of different claims in proceedings, and
is thought to be likely to release hundreds of millions of pound left in limbo
by the legal uncertainty.

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