The definition of the "prescribed part"

You will remember that the aim is to calculate a sum of money which instead of being paid to a bank under its floating charge is instead ring fenced to be paid to unsecured creditors.

The overall sum available for distribution (after paying off secured creditors and the new smaller class of preferential creditors) must be divided into two parts being:

• That prescribed part which must be made available to unsecured creditors.

• The balancing sum which is then available for the floating charge holder.

The "prescribed part" is :

• 50% of the first £10,000 of the sum and
• 20% of the balance.

For example if a company were in liquidation and the liquidator:

• held £200,000 (after paying preferential and secured creditors),

• the bank were owed £210,000 and

• the unsecured creditors were owed £370,000,

then the "prescribed part" is a part of the sum of £200,000 which must be made available to the unsecured creditors.

The prescribed part is worth £43,000 and is calculated as follows:

In other words the £200,000 would be shared: