Page 279 - AAA Integrated Workbook STUDENT S18-J19

UK syllabus: Auditing aspects of insolvency

1.7 The prescribed part

The prescribed part is an amount set aside to give unsecured creditors some
protection. In many liquidations, if the prescribed part was not in place, the
unsecured creditors would be unlikely to receive anything as it is likely that fixed
charge holders, liquidation fees, preferential creditors and floating charge holders
would receive any monies crystallised.

The calculation is based on the 'net property' of the company. This is the amount of
assets remaining after paying fixed charge holders, liquidator's fees and preferential
creditors.

If the net property is less than £10,000, the prescribed part won't apply and any
remaining monies will be paid to the floating charge holders.

To calculate the prescribed part:

1 50% of the first £10,000 of the net property figure

2 20% of £2,985,000 less £10,000

3 Subject to a maximum of £600,000

If net property is less than £2,985,000 the calculation at step 2 should use the figure
of net property remaining.

Illustrations and further practice

See Study Text Chapter 19 for an example on calculating the prescribed part.

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