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According to a report in the Guardian, the judgment overturns 25 years of banking practice and means banks will no longer have first call on money recovered from collapsed businesses.
The Lords ruled that in certain circumstances, preferential creditors, such as the Inland Revenue and the employees, will have funds distributed to them before the lending bank.
This means the crown - ultimately the government - is in line for a multimillion-pound windfall from an estimated 550 bankruptcies that have been waiting for the crucial decision.
As government agencies will receive money that would once have gone to the lender, insolvency experts believe the banks could chase the individuals who have acted as guarantors to the business in order to recoup their losses.
They also warn that the price of loans for small business could rise because of the additional risk involved in lending to them, and that banks may be inclined to call in problem loans more quickly.
John O'Conor, a litigation partner at Allen & Overy, described the Lords ruling as "an uncommercial decision".
Mr O'Conor who represented NatWest bank on the precedent-setting case against paints company Spectrum Plus, said: ""It is difficult to square with the principle of an enterprise culture."
Full article: Risk to small businesses after Lords ruling on bankruptcy - Guardian
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The Editor
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