Row denies creditors £200m pot.

Row denies creditors £200m pot.

Up to £200m is being withheld from UK creditors of failed companies because the big banks are refusing to allow a test case to decide who gets paid first when a business goes bust.

Link: Big banks accused of bullying IPs

The disputed cash pile has gone down since the row erupted two years ago, but the pot is expected to continue to grow by £60m to £90m a year until the issue is resolved.

Insolvency practitioners insist the now notorious Brumark ruling of 2001 no longer gives banks preferential creditor status when a business becomes insolvent. But R3, the insolvency industry’s trade association, has accused the banks of bullying its members into paying them. It claims the banks are making out of court settlements with administrators to avoid a once-and-for-all court ruling.

Barclays has said it is ignoring Brumark and is using a case from 1979 as its guide. R3 is now pushing its members to instigate test cases to end the matter. John Verill, president-elect of R3, told Accountancy Age: ‘We are telling practitioners they have a professional duty to put in applications to court.’

The dispute is part of a long-running saga that began two years ago when the UK’s Privy Council made a ruling on the so-called Brumark case, placing banks below the Inland Revenue, Customs and employees in the creditor pecking order.

But the ruling’s application to UK cases remains unclear and both banks and others like the Revenue are claiming the £200m, saying that they will sue insolvency practitioners if they do not get paid.

Industry sources also say some banks, which control receivership appointments, have begun bullying IPs saying they will not give them work if they do not accept they have preferred status. But Verrill remained adamant and has the support of most of R3. ‘The issue is not going to go away,’ he said. ‘The sooner the boil is lanced, the better.’

Barclays has said it is waiting for a test case to be instigated by IPs but will stick by its current policies until then. The British Bankers Association said: ‘It has always been up to the banks to decide on their own policy.’

Whitepaper

The Future of Finance is in the CFO's Hands

Business The Future of Finance is in the CFO's Hands

1m
Save a Week a Month Consolidating Accounts

Accounting Software Save a Week a Month Consolidating Accounts

2m
Mitigating Risk Through Internal Control

Legal Mitigating Risk Through Internal Control

3m
Could tax season have run more efficiently?

Corporate Tax Could tax season have run more efficiently?

3m

Related Articles

Late payments like "crack cocaine" for large businesses

Business Recovery Late payments like "crack cocaine" for large businesses

2w Tom Lemmon
Retail restructuring - understanding the options

Business Recovery Retail restructuring - understanding the options

4w Suzanne Brooker, Partner and Insolvency and Restructuring head at BDB Pitmans
More bad news for Debenhams

Business Recovery More bad news for Debenhams

7m Emanuela Hawker, Reporter
Insolvency and corporate governance

Business Recovery Insolvency and corporate governance

7m Chris Laughton
Impact of Brexit on restructuring and insolvency

Business Recovery Impact of Brexit on restructuring and insolvency

9m Emma Smith, Managing Editor
Carillion CFO blew whistle over 'sloppy accounting' months before collapse

Business Recovery Carillion CFO blew whistle over 'sloppy accounting' months before collapse

1y Alia Shoaib, Reporter
Toys R Us UK and Maplin enter into administration after failing to secure buyers

Business Recovery Toys R Us UK and Maplin enter into administration after failing to secure buyers

1y Alia Shoaib, Reporter
How to avoid a Carillion collapse

Business Recovery How to avoid a Carillion collapse

1y Russell-Cooke