Fixed and floating charge holders cannot participate in prescribed part for shortfalls

Secured creditors with an unsecured shortfall cannot claim a share of the prescribed part of the floating charge realisations set aside for unsecured creditors under Section 176A of the Insolvency Act 1986. This applies whether the secured creditor is the holder of a fixed or a floating charge (or both).

This is the effect of two first-instance decisions in the cases of Re Permacell Finesse Limited and In the matter of Airbase (UK) Limited. In both cases, the holder of a floating charge sought recovery of its unsecured shortfall out of the prescribed part, in competition with the ordinary unsecured creditors. If successful, this claim would have reduced the dividend available to the other unsecured creditors drastically.

We have put together an analysis following these decisions, as well as some suggestions for action.