How can creditors participate in the prescribed part?

An administrator, liquidator or receiver must make a ‘prescribed part’ of the company’s net property available for the satisfaction of unsecured debts. The amount of the prescribed part will depend upon the amount of the company’s assets that are realised but is subject to a maximum of £600,000. The prescribed part must not be distributed to the proprietor of a floating charge unless the claims of unsecured creditors have been satisfied and there is a surplus.

The courts have established that a creditor, having made a secured recovery, cannot share in the prescribed part in respect of its unsecured shortfall and that a secured creditor can share in the prescribed part if it releases its security and proves as an unsecured creditor.

The recent High Court decision of Re JT Frith Ltd has shown how senior secured creditors may be able to participate in the prescribed part while at the same time retaining their security…

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