In corporate insolvency, what is the 'prescribed part'?

Answer options:

The portion of assets reserved exclusively for the liquidator's fees.

A ring-fenced fund set aside out of floating charge assets to pay unsecured creditors.

The minimum dividend that must be paid to preferential creditors.

The portion of shares that must be cancelled upon liquidation.

How to approach this question

Identify the statutory mechanism designed to give unsecured creditors a small return in insolvency.

Full Answer

B.A ring-fenced fund set aside out of floating charge assets to pay unsecured creditors.✓ Correct

The Enterprise Act 2002 introduced the 'prescribed part' to improve the position of unsecured creditors. It requires a liquidator or administrator to ring-fence a percentage of the funds realised from assets covered by a floating charge and distribute it to unsecured creditors, who would otherwise often receive nothing.

Common mistakes

Confusing the prescribed part with preferential debts (like employee wages).

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Practice the full ACCA LW — Corporate and Business Law Practice Exam 3

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