What Rights do Secured Creditors Possess during Company Administration?
Secured creditors can be split into two types: those who have security registered at Companies House, and those who have a fixed charge over an asset. During this process, an automatic moratorium means neither class can bring legal cases against a company or its assets. ( (paragraphs 42, 43 and 44, Schedule B1, IA 1986)) without first petitioning the Court or the appointed administrator.
Their rights are as follows:
Secured Fixed Charge Creditors
These creditors have a legal charge over specific company assets such as land, machinery or intellectual property and, as such, if these assets are sold in the case of an insolvency procedure, these creditors will receive their payment before any other class of creditor. The costs involved in realising these assets will be deducted from any payment.
Secured Floating Charge Creditors
Reference to a secured floating charge means the creditor has a charge not over a specific asset but over a fluctuating body of assets.
Qualifying Floating Charge
A particular class of secured creditors may have what is known as a ‘Qualifying Floating Charge.’ These creditors have the power to appoint either an administrator or administrative receiver.
Section 176A of the Insolvency Act 1986 and the Insolvency act 1986 (Prescribed Part) Order 2003 makes clear that a part of the proceeds from realising the assets covered by a floating charge should be set aside to satisfy unsecured debts. This is sometimes referred to as a ‘ring- fenced fund.’ This asserts that when a company has gone into administration, qualifying floating charge holder’s (QFCH) who have registered later than 15th of September 2003 must forego a ‘prescribed part’ of the realisable assets so they can be made available to unsecured creditors.
The definition of the prescribed part is:
50% of the first £10,000 of assets (that would otherwise have gone to the QFCH)
20% of the balance up to a total of £600,000
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