Insolvency Act 1986, section 386

Categories of preferential debts

Part XII Preferential and non-preferential debts in Company and Individual Insolvency

(1)A reference in this Act to the preferential debts of a company or an individual is to the debts listed in Schedule 6 to this Act [F1027(contributions to occupational pension schemes; remuneration, &c. of employees; levies on coal and steel production [F1028 ; debts owed to the Financial Services Compensation SchemeF1028] [F1029 ; deposits covered by Financial Services Compensation SchemeF1029] [F1030 ; other deposits [F1031 ; certain HMRC debtsF1031,F1030]] )F1027] ; and references to preferential creditors are to be read accordingly.

[F1032 (1A) A reference in this Act to the “ordinary preferential debts” of a company or an individual is to the preferential debts listed in any of paragraphs 8 to 15B of Schedule 6 to this Act.

(1B) A reference in this Act to the “secondary preferential debts” of a company or an individual is to the preferential debts listed in paragraph 15BA [F1033 , 15BB or 15D F1033] of Schedule 6 to this Act. F1032]

(2) In [F1034 Schedule 6 F1034] “the debtor” means the company or the individual concerned.

(3)Schedule 6 is to be read with [F1035Schedule 4 to the Pension Schemes Act 1993F1035] (occupational pension scheme contributions).

Definitions used in section 386 2

the company

2 Section 233B does not apply in relation to a contract for the supply of goods or services to a company (“the company”) where any of paragraphs 3 to 11 applies.

Defined in Sch.4ZZA para.2 · see it in the full Act
deposit

(2) For the purposes of those paragraphs and this paragraph a “deposit” means rights of the kind described in—

(a) paragraph 22 of Schedule 2 to the Financial Services and Markets Act 2000 (deposits), or

(b) section 1(2)(b) of the Dormant Bank and Building Society Accounts Act 2008 (balances transferred under that Act to authorised reclaim fund).

Defined in Sch.6 para.15C(2) · see it in the full Act

Cases considering section 386 10

McGrath and another (Appellants) and others v Riddell and others (Respondents) McGrath and another and others (Appellants) v Riddell and others (Respondents) (Conjoined Appeals)

[2008] UKHL 21 · 9 April 2008Defines

Lord Neuberger used the provision with section 175 to identify the priority enjoyed by preferential creditors under the English statutory regime. (see para [69])

Revenue and Customs v Royal Bank of Scotland Plc

[2007] EWCA Civ 1262 · 29 November 2007Defines

Defines preferential debts by reference to the debts listed in Schedule 6. The definition was used to identify VAT as preferential at the relevant time (see para [5]).

Lune Metal Products Ltd v Getliffe & Ors

[2006] EWCA Civ 1720 · 14 December 2006Defines

Identifies the preferential creditors referred to in the proposed distribution. The provision is not otherwise construed. (see [3])

What each judgment says about section 386 is in the case-law panel in the full Act.

Amendments and notes

13 notes from legislation.gov.uk

Amendments

  1. F1027Words in s. 386(1) substituted (15.9.2003) by 2002 c. 40, ss. 251(3), 279 (with s. 249(6)); S.I. 2003/2093, art. 2(1), Sch. 1 (subject to arts. 3-8 (as amended by S.I. 2003/2332, art. 2))
  2. F1028Words in s. 386(1) inserted (26.3.2015) by The Deposit Guarantee Scheme Regulations 2015 (S.I. 2015/486), regs. 1(2), 14(2)
  3. F1029Words in s. 386(1) inserted (31.12.2014) by Financial Services (Banking Reform) Act 2013 (c. 33), ss. 13(2), 148(5); S.I. 2014/3160, art. 2(1)(a)
  4. F1030Words in s. 386(1) inserted (1.1.2015) by The Banks and Building Societies (Depositor Preference and Priorities) Order 2014 (S.I. 2014/3486), arts. 1(2), 8(2) (with art. 3)
  5. F1031Words in s. 386(1) inserted (with application in accordance with s. 98(7) of the amending Act) by Finance Act 2020 (c. 14), s. 98(1)(a)
  6. F1032S. 386(1A)(1B) inserted (1.1.2015) by The Banks and Building Societies (Depositor Preference and Priorities) Order 2014 (S.I. 2014/3486), arts. 1(2), 8(3) (with art. 3)
  7. F1033Words in s. 386(1B) substituted (with application in accordance with s. 98(7) of the amending Act) by Finance Act 2020 (c. 14), s. 98(1)(b)
  8. F1034Words in s. 386(2) substituted (1.1.2015) by The Banks and Building Societies (Depositor Preference and Priorities) Order 2014 (S.I. 2014/3486), arts. 1(2), 8(4) (with art. 3)
  9. F1035Words in s. 386(3) substituted (7.2.1994) by 1993 c. 48, s. 190, Sch. 8 para. 18 (with s. 6(8)); S.I. 1994/86, art. 2

Modifications

  1. C1127S. 386 applied (with modifications) by S.I. 1986/1999, art. 3, Sch. 1 Pt. II
  2. C1128S. 386 applied (with modifications) (17.2.2009 for certain purposes, otherwise 21.2.2009) by Banking Act 2009 (c. 1), ss. 103, 263(1)(2) (with s. 247); S.I. 2009/296, arts. 2, 3, Sch. para. 2
  3. C1129S. 386 applied (with modifications) (17.2.2009 for certain purposes, otherwise 21.2.2009) by Banking Act 2009 (c. 1), ss. 145, 263(1)(2) (with s. 247); S.I. 2009/296, arts. 2, 3, Sch. para. 3
  4. C1130S. 386 applied (with modifications) (8.7.2021) by The Payment and Electronic Money Institution Insolvency Regulations 2021 (S.I. 2021/716), regs. 2, 37, Sch. 1 para. 3 (with reg. 5) (as amended (4.1.2024) by S.I. 2023/1399, regs. 1(2), 4, 11)