Statement On Behalf Of Inland Revenue, Hm Customs And Excise And The Redundancy Payments Service (“The Crown Departments”)


This statement is issued on behalf of the Crown Departments in light of the recent decision of the Privy Council in the Brumark case, and relates to the distinction between fixed and floating charges, and certain issues arising therefrom.

Where an insolvency practitioner causes a company to make a distribution of book debt proceeds subject to a purported fixed charge, or proposes to do so, the Crown Departments as creditors reserve the right to challenge such a distribution or proposed distribution if they believe that the charge in question was actually a floating charge.

How many challenges of this nature are made to distributions or proposed distributions will be a matter for the discretion of the relevant department (subject to the state of the law) in light of the facts of the individual case. However, as general guidance, and by way of an example, the Crown Departments consider that where a charge has been operated so that the chargor has been allowed an unfettered right to draw on the proceeds of the book debts without the specific consent of the chargeholder, this does not constitute sufficient control to qualify as a ‘fixed’ charge over such book debts.

Distributions made or proposed to be made to chargeholders after the date of the Privy Council decision in Brumark based on a charge such as described above and other types of purported fixed charges which in reality are floating charges are therefore liable to challenge from any of the Crown Departments.

In addition, pre-insolvency VAT credits will be paid to companies subject to insolvency procedures in preference to other Crown creditors, only in cases where a debenture is provided and Customs & Excise are satisfied that the charge over book debts contained therein was actually a fixed charge.

The Crown Departments wish to make clear their view that insolvency practitioners have a duty to follow relevant law when causing companies to make distributions.

Signed on behalf of the Crown Departments by:

John Payne    - (Inland Revenue)

Derek Willman - (HM Customs and Excise)

Steve Walker  - (Redundancy Payments Service)