UK Law and Practice Contributed by: Kate Stephenson and Zoe Stembridge, Kirkland & Ellis
(a) contributions to occupational and state pen - sion schemes; (b) wages and salaries of employees for work done in the four months before the insolvency date, up to a maximum of GBP800 per person; (c) holiday pay due to any employee whose con - tract has been terminated, whether the termi - nation takes place before or after the date of insolvency; and (d) bank and building society deposits eligible for compensation under the Financial Services Compensation Scheme (FSCS) up to the statu - tory limit; • secondary preferential debts, which include claims by HMRC in respect of certain taxes, including VAT, PAYE income tax (including student loan repay - ments), employee National Insurance contributions and Construction Industry Scheme deductions (but excluding corporation tax and employer National Insurance contributions), which are held by the company on behalf of employees and customers, as well as bank and building deposits eligible for compensation under the FSCS to the extent such claims exceed the statutory limit; and • prescribed part – as noted, part of the assets sub - ject to a floating charge is set aside for unsecured creditors (up to GBP800,000). Credit extended to a company in administration may be given priority over unsecured claims by virtue of classification as an administration expense. Rent for periods after the commencement of an administration is treated as an expense of the administration (ie, pay - able before unsecured creditors/those with floating charges), as long as the company remains in occupa - tion. However, rent arrears that accrued prior to the administration are treated as an unsecured claim. 2.3 Secured Creditors The type of security granted over an asset in England largely depends on whether legal title (ie, ownership in the ordinary sense) to the secured asset is intended to be transferred to the secured party. Security can be in the form of a mortgage or security assignment (trans - fer of title; security provider retains possession) or a charge (no transfer of title; security provider retains possession). There are also other types of security
that apply where the secured party is in possession of the secured asset – eg, liens and pledges. Mortgages To create a mortgage, the legal or beneficial title to the secured asset must be transferred to the security holder. Mortgages are most commonly granted over real estate, but are also seen over movable property such as ships and airplanes. Legal mortgages must be in writing and executed as a deed by the secu - rity provider (the mortgagor). To take effect as a legal mortgage, a mortgage over registered land must be registered at the Land Registry. If the security is not registered, it will usually take effect as an equitable mortgage, which can undermine the strength of the security in the case of competing claims. Charges Charges may be taken over a broad spectrum of assets, including movable property, shares, intellec - tual property (and other intangible assets) and bank accounts. A charge may be either “fixed” or “float - ing”; secured lenders will usually aim to ensure that as much of their security as possible is fixed. A fixed charge requires the security provider (the chargor) to hold the charged asset (eg, shares) to the order of the secured party (the chargee), while a floating charge permits the chargor to deal with the asset in the ordi - nary course of business (the floating charge “hovers” above a shifting pool of assets such as cash, stock and inventory). Charges are easier to grant than legal mortgages as there are fewer formalities involved. Charges must be in writing and signed by the secu - rity provider. Registration and Formalities Security granted by an English company or LLP must be registered at Companies House within 21 days of creation or it may be void on insolvency and against third parties. Other types of security (eg, over intellec - tual property) may require further formalities; certain mortgages and charges over interests in land must be executed as a deed. Enforcement options depend on the nature of the security and the provisions of the security document, amongst other matters.
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