The government does not expect this reform to significantly impact access to finance or the cost of borrowing.
The independent OBR did not make any adjustments to their economic forecast in regard to this measure.
At Budget 2018, the Government published the following assessment:
Type of Creditor
Explanation and Examples
Current Average Percentage of Debt Recovered in Insolvency
New Average Percentage of Debt Recovered in Insolvency
- Fixed charge secured creditors
Lenders to whom the business granted security, primarily financial institutions. When a fixed charge is provided, the company loses the right to sell or trade the item. These assets tend to be fundamental to the business; for example, machinery, property or vehicles.
- Insolvency practitioners
Fees for overseeing the process.
- Preferential Creditors
Claims by the Redundancy Payment Service (RPS) and Financial Services Compensation Scheme (FSCS) on behalf of employees and customers (to statutory limits); and from 2020, HMRC will be a secondary preferential creditor (below the RPS and FSCS) for Value-Added Tax, Employee National Insurance contributions, Pay-As-You-Earn Income Tax and Construction Industry Scheme Deductions.
83% (unchanged) for existing preferential creditors; 14% for HMRC
- Floating charge secured creditors
Lenders for whom the company is not granted security, primarily financial institutions. This tends t be the case in relation to assets that are not fixed; for example, stocks, raw materials, fixtures and fittings or cash.
Less than 36%
- Unsecured creditors
All remaining creditors, including HMRC debts levied directly on businesses; and debts owed to suppliers, contractors, landlords and customers.
Less than 4%
Only get paid if all the above creditors are paid in full.