BusinessBusiness RecoveryRow 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.’

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