HMRC as an unsecured creditor at Comet

Secured creditors, led by the financial investors who backed Comet, are expected to receive a return of 34p in the pound, while unsecured creditors, including HM Revenue & Customs which is owed £26.1m, will receive nothing.

I sorta expect this to cause another kerfluffle. HMRC being an unsecured creditor means that The State loses out when a company goes bust. And we know that The State losing out is a terribly bad thing.

I\’ve got at the back of my mind that HMRC being unsecured is a recent thing. But that might just be my faulty memory.

The other side of it is that if HMRC were secured then many more businesses would go bust much sooner. Which is why it isn\’t of course.

6 comments on “HMRC as an unsecured creditor at Comet

  1. Yes, it is a relatively recent thing (2003), although HMRC were not, previously, a secured creditor, rather they were a preferential creditor and on a par with employees claiming unpaid wages and holiday pay.

    So, up to 2003, the running order in insolvency ran.

    1. Secured (fixed charge) creditors.
    2. Preferential creditors (employees & HMRC)
    3. Creditors holding a floating charge against company assets.
    4. Unsecured creditors.

    Exactly why HMRC were suddenly relegated from the second to the fourth division I’m not sure although I expect that there was some sort of political calculation involved.

    The answer will, I expect, be buried somewhere in one of the Treasury’s annual budget reports from that period, although it may also crop up in Hansard if it came up in one of the finance bill debates.

  2. HMRC going unsecured in 2003 was the sop for allowing up to £600k of floating charge realizations to go to unsecured creditors ahead of the floating charge creditor. Idea was it would give some return to the smaller suppliers and customer deposits.
    They’ve never been ahead of fixed charge security holders. And quite right too.

  3. @Unity – easy mistake to make. Presumably if all creditors were made good and there was money left to give even one penny to the shareholders the business would have not actually been insolvent anyway?

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