What is the prescribed part in insolvency?
In insolvency, the prescribed part is a portion of a company’s net property that is reserved for unsecured creditors. It is set out in section 176A of the Insolvency Act 1986.
This money would otherwise be available to satisfy claims secured by a floating charge. The prescribed part is calculated as a percentage of the company’s net property, and its value is set by Statutory Instrument, as explained by the Enterprise Act 2002.
The prescribed part is calculated as 50% of the first £10,000 of the company’s net property, plus 20% of any amount exceeding £10,000, up to a maximum prescribed part of £800,000 (if the first ranking floating charge was created on or after 6 April 2020).
If the floating charge was created before this date, the maximum is £600,000.
It arises from Section 3 of The Insolvency Act 1986 (Prescribed Part) Order 2003.
Net property refers to the funds remaining from the realisation of assets, particularly those subject to a floating charge, after costs and preferential creditors have been paid. It arises and is defined in Section 176A(6) of the Insolvency Act 1986:
In subsections (2) and (3) a company’s net property is the amount of its property which would, but for this section, be available for satisfaction of claims of holders of debentures secured by, or holders of, any floating charge created by the company.
This amount is then used to calculate the “prescribed part” which is a portion of the net property that is available to unsecured creditors.
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