The prescribed part is a rule in UK liquidation law that sets aside some money specifically for unsecured creditors, in some relevant situations. It applies when a company has assets covered by a floating charge and those assets are sold in liquidation.
In simple terms, it’s there to make sure unsecured creditors are not left with nothing just because a bank or lender has a floating charge over the company’s assets.
Without the prescribed part, the money raised from selling those assets would usually go straight to the floating charge holder. The prescribed part diverts a portion of that money so unsecured creditors receive at least something.
Why the prescribed part exists
Floating charges give lenders strong protection. They often cover most business assets, including stock, equipment and work in progress. In many liquidations, this used to mean that unsecured creditors got nothing at all.
The prescribed part was introduced to soften that outcome. Its purpose is straightforward:
- To stop unsecured creditors going completely unpaid
- To create a fairer split when floating charge assets are sold
- To balance lender protection with basic creditor fairness
It does not guarantee full repayment for unsecured creditors or even a meaningful one in every case. But it does ensure they are not automatically excluded.
When does the prescribed part apply?
The prescribed part only applies in certain situations. All of the following need to be true:
- The company is in a Creditors’ Voluntary Liquidation (CVL) or Administration
- There is a floating charge created on or after 15 September 2003
- Assets subject to that floating charge have been realised
- There are unsecured creditors
If there is no floating charge, or no assets caught by it, the prescribed part does not come into play.
It also does not apply to assets under a fixed charge. Those are dealt with separately and go directly to the fixed charge holder.
How the prescribed part is calculated
The amount set aside for the prescribed part is based on the value of the assets realised under the floating charge. The calculation works like this:
- 50% of the first £10,000
- 20% of the remainder
- Capped at a maximum of £800,000
This cap was increased in April 2020. Before that, the maximum was £600,000.
In practice, this means the prescribed part is often relatively modest, especially in smaller liquidations. It is a slice of the pot, not a large redistribution of funds.
Who gets paid from the prescribed part?
The prescribed part is shared between unsecured creditors only. This group usually includes:
- Trade suppliers
- HMRC for certain taxes
- Customers owed refunds
- Landlords for arrears
- Unsecured loan lenders
It does not go to:
- Banks or lenders with fixed or floating charges
- Preferential creditors, such as employees for wages
- Shareholders
The insolvency practitioner distributes the prescribed part in line with insolvency rules, usually on a pro rata basis. That means each unsecured creditor receives a share based on what they’re owed.
What the prescribed part means for directors
The prescribed part doesn’t change the directors’ duties or your personal position. It’s about how money is divided up once the company is already in liquidation.
That said, it can affect expectations. Some directors assume that if a bank has a floating charge, unsecured creditors will get nothing. The prescribed part means that is not always the case.
It can also influence decisions around timing.
Acting early and choosing a voluntary liquidation gives more structure and control over how assets are realised and distributed.
What the prescribed part does not do
It’s important to be clear about the limits of the prescribed part. It does not:
- Protect directors from investigation
- Stop a lender enforcing a floating charge
- Guarantee unsecured creditors will be paid in full
- Apply in every liquidation
In many cases, the amount available is small once costs are deducted. It’s a safety net, not a solution to creditor losses.
Key takeaways
- The prescribed part is money set aside for unsecured creditors in liquidation
- It applies when assets subject to a floating charge are sold
- It exists to stop unsecured creditors going completely unpaid
- The amount is calculated using a statutory formula and capped at £800,000
- It does not affect director liability or guarantee full repayment
Get advice on liquidation and creditor outcomes
If your company is facing liquidation, understanding how creditors will be treated can help you make clearer decisions. A licensed insolvency practitioner can explain where the money is likely to go, what the prescribed part means in your case and what your responsibilities are as a director.
Getting advice early gives you clarity and control, even when closure looks inevitable. Our team is here to help you understand your legal obligations to creditors and guide you through your options, reducing stress and uncertainty.
Contact us today for a free, no-obligation consultation.
