Restructuring and insolvency professionals in the South and Thames Valley have urged the Government to scrap proposals to make the HMRC a preferential creditor in insolvencies.
The call comes from the insolvency and restructuring trade body R3 ahead of the second reading of the Finance Bill on Wednesday April 22.
It is issued amid widespread concern that the proposals will have a significant negative impact on access to finance for businesses.
Financial services trade body UK Finance has estimated the policy could hit lending by at least £1bn per year.
Garry Lee, chair of R3’s Southern and Thames Valley Committee, said: “At a time when the business community is reeling from the COVID-19 pandemic and the subsequent lockdown, this policy risks undermining the work the Government has done to protect businesses and preserve jobs through the support measures it has announced over the last few weeks.
“If this policy goes ahead, asset-based lenders will be far less likely to provide the finance needed for businesses because there will be a greater risk of losses in insolvencies.
“This will be particularly acute where new funding is needed to support business rescue.”
Garry, who is a senior manager in the recovery and restructuring services team at accountancy firm Smith and Williamson’s Southampton office, added: “If a rescue attempt doesn’t succeed or can’t start because the business can’t access the finance it needs, everyone loses out.
“The business fails, jobs are lost, and the Treasury misses out on tax receipts.”
The Bill proposes moving HM Revenues & Customs (HMRC) up the strict statutory order of priority of creditors in insolvency procedures, above suppliers, consumers, pension schemes, and employees, as well as common types of lending debts.
Research R3 carried out last year showed that nearly four-in-five (78%) members of the insolvency and restructuring profession feared the proposals would make it harder to rescue businesses.
Eighty-three percent thought the plans would make it harder for firms to access the funding they need, while 85% felt that any negative impact the proposals may have outweighed the Government’s justification for introducing the change.
Garry said: “The Government’s policy will hurt asset-based lending, in particular.
“This type of lending is really important for retailers and small businesses – exactly the type of businesses most in need of help at the moment.
“This is not the way to go about increasing tax revenue from insolvencies. It makes no sense for these proposals to go ahead – not now, not even when the economy has recovered.”
R3, along with a number of UK business bodies, has been campaigning against these proposals for some time.
Ahead of the Budget in March, this group called on the Chancellor to think again about the proposals.
As well as R3, this group included UK Finance, the City of London Law Society, The Chartered Institute of Credit Management (CICM), The Insolvency Practitioners Association (IPA), The Institute of Chartered Accountants in England and Wales, and others.
Garry said: “At a time when the business community is in crisis, the Government needs to listen to the concerns of experts and explore other options for increasing tax revenue from insolvencies – ones that don’t damage other creditors, make it harder to rescue businesses and put businesses and jobs at risk.”
