U.K. Companies Face Lending Risks Under New Bankruptcy Rules

New U.K. insolvency rules that prioritize tax debt in bankruptcy will make it hard for struggling businesses to access loans.

Under rules that come into force Dec. 1, Her Majesty’s Revenue and Customs will become a secondary preferential creditor in the event that a company goes bankrupt, meaning that it will be paid ahead of unsecured lenders.

The problem is exacerbated for companies that took advantage of the government’s pandemic stimulus plan that allows businesses to defer value-added taxes owed until 2021—and pushed tax debts into next year, elevating their overall debt.

As a result, companies with large tax debts ...