The prescribed part is a slice of the money that would otherwise go to a floating charge holder, which section 176A of the Insolvency Act 1986 reserves for unsecured creditors. It is 50% of the first £10,000 of net property plus 20% of the rest. For floating charges created on or after 6 April 2020 it is capped at £800,000, and for older charges at £600,000.

What is the prescribed part and when does it apply?

Section 176A was added to the Insolvency Act 1986 with effect from 15 September 2003. It applies where a floating charge covers the property of a company that is in liquidation or administration, has a provisional liquidator, or has a receiver. The liquidator, administrator or receiver must:

  • make a prescribed part of the company’s net property available to pay unsecured debts; and
  • not pay that part to the floating charge holder, except for any amount left after the unsecured debts are paid in full.

It applies only to charges that were floating charges when created and were created after the first prescribed part order came into force (section 176A(9)). That order, the Insolvency Act 1986 (Prescribed Part) Order 2003, came into force on 15 September 2003. A floating charge created before then does not carry a prescribed part, however long the lending has continued.

How is the prescribed part calculated?

Article 3 of the 2003 Order sets the formula:

Net property Prescribed part
£10,000 or less 50% of the net property
More than £10,000 50% of the first £10,000 plus 20% of the excess

The result is capped. The Insolvency Act 1986 (Prescribed Part) (Amendment) Order 2020 raised the cap from £600,000 to £800,000 from 6 April 2020. The old £600,000 cap still applies where the net property is available to a floating charge created before 6 April 2020, and no floating charge created on or after that date ranks equally with it or ahead of it. A lender that took fresh floating security after April 2020 ranking equally with or ahead of its old charge will find the higher cap applies.

The cap is reached when net property is £3,985,000 under the £800,000 limit (£5,000 plus 20% of £3,975,000).

What does net property mean?

Section 176A(6) defines net property as the property that would be available to floating charge holders if section 176A did not exist. So the calculation starts with floating charge realisations after deducting the items that rank ahead of the floating charge:

  • the costs of realising the assets and the expenses of the procedure, so far as the free assets cannot meet them (section 176ZA in a winding up);
  • ordinary preferential debts, mainly employee claims;
  • secondary preferential debts, which include certain HMRC debts such as VAT and PAYE for insolvencies starting on or after 1 December 2020.

Fixed charge proceeds are not part of net property, because they never go to the floating charge holder. Section 176ZA(2)(a) also prevents the prescribed part from being used to meet the winding up expenses when calculating what the free assets can cover. For where each class ranks, see fixed and floating charges and HMRC as a secondary preferential creditor.

When can the prescribed part be disapplied?

Section 176A provides three exits.

  1. Small estates. The duty does not apply if net property is less than the prescribed minimum of £10,000 (article 2 of the 2003 Order) and the office holder thinks the cost of paying unsecured creditors would be disproportionate to the benefit (section 176A(3)).
  2. Arrangements. A company voluntary arrangement, or a compromise or arrangement under Part 26 or Part 26A of the Companies Act 2006, can disapply it (section 176A(4)).
  3. Court order. The office holder can apply to court on the ground that the cost of a distribution would be disproportionate to the benefit, and the court can order that the duty does not apply (section 176A(5)).

If none of these applies, the office holder must set the fund aside even if it is small compared with the total unsecured debt.

How is the prescribed part paid out?

The prescribed part is paid to unsecured creditors in the same way as any other dividend, through the proof of debt process. When an office holder intends to pay a dividend to unsecured creditors, the notice of intended dividend must state the value of the prescribed part, unless there is none or the court has disapplied it (rule 14.29(3) of the Insolvency (England and Wales) Rules 2016). The notice declaring the dividend must also state it (rule 14.35(4)), and the final progress report must show the amount paid to unsecured creditors under section 176A (rule 18.3(2)).

In an administration, unsecured creditors normally cannot be paid without court permission. Paragraph 65(3) of Schedule B1 makes an exception for distributions of the prescribed part, so an administrator can pay it without asking the court. Where the administrator has said there is nothing for unsecured creditors other than through the prescribed part, the administrator’s fees may be fixed with the consent of the secured creditors, and of the preferential creditors where they are being paid (rule 18.18(4)). For how creditors claim, see claiming in an insolvency: proof of debt.

How does the calculation work with numbers?

Illustration only. A trading company enters administration. Its bank holds a debenture created in 2022 with a fixed charge over equipment and a floating charge over stock, debtors and cash. Floating charge assets realise £700,000. Administration expenses are £120,000, employee preferential claims are £30,000 and HMRC’s secondary preferential claim for VAT and PAYE is £40,000.

  • Net property: £700,000 minus £190,000 = £510,000.
  • Prescribed part: 50% of £10,000 = £5,000, plus 20% of £500,000 = £100,000, giving £105,000.
  • The cap of £800,000 applies because the charge was created after 6 April 2020, but it is not reached.
  • The bank receives £405,000 under its floating charge. Unsecured creditors share £105,000 less the costs of agreeing claims and paying the dividend.

If unsecured claims total £1,050,000, the prescribed part pays about 10p in the pound before costs. Without section 176A, they would receive nothing.

What mistakes come up?

  • Calculating on gross realisations. The percentages apply to net property after expenses and preferential debts, not to everything the office holder collects.
  • Including fixed charge proceeds. Only property that would otherwise go to a floating charge holder counts.
  • Using the wrong cap. The £600,000 cap survives only for pre April 2020 floating charges with no later floating charge ranking equally or ahead.
  • Assuming a CVA keeps it. A voluntary arrangement can disapply the prescribed part, so creditors should read the proposal before voting.
  • Not proving. Unsecured creditors who do not submit a proof by the last date for proving can miss the distribution entirely.

The same rules shape how directors and lenders weigh up the options in a creditors’ voluntary liquidation.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.