PracticeConsultingInsolvency practitioners at a standstill

Insolvency practitioners at a standstill

Privy Council ruling leaves IPs unsure whether to pay banks or other preferential creditors

British insolvency practitioners are refusing to pay out money to banks and other major creditors after a ruling in a New Zealand court case.

The decision by the UK Privy Council at the end of last month in a case involving New Zealand company Brumark Investments said that charges on book debts were fixed rather than floating.

The effect of this, if it became binding in the UK, would be to end the preferential treatment of banks in insolvency cases.

They would then be paid only after preferential creditors, such as the taxman, and would receive less of what they are owed by a collapsed company.

Some fear this would make banks less willing to lend businesses money.

Although no decision has been made as to whether the case applies to the UK, many IPs believe it will.

Gerald Krasner, senior insolvency partner at Bartfield and Co, said: ‘We don’t know where we are at the moment. A quick decision has to be made because everybody is standing still.’

He added: ‘We don’t want to pay any money until we find out who the money goes to.’

President of the Insolvency Practitioners’ Association, Keith Goodman, said: ‘People are not doing anything until they get guidance. Anybody doing something is taking a risk.’

According to Goodman, insolvency practitioners are being pushed by both preferential creditors and the banks to distribute the money to them.

‘We are between a rock and a hard place as far as this goes,’ he said.

Goodman said IPs are asking R3, the Association of Business Recovery Professionals, for guidance. R3 said it had issued a technical bulletin and added: ‘Our next step will be for R3’s council to explore fully the implications of the Brumark decision, then we will be in a position to comment.’

– Banks face secured loan fear, page 7.

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