Empty Second Charge Holder can Share in the Prescribed Part

In the recent decision of Re PAL SC Realisations 2007 Ltd [2010] EWHC 2850 (Ch), the Court confirmed that a secured creditor of a company, which is in administration or liquidation, whose security is valueless, can release the security in its entirety and share in the "prescribed part" in respect of its (formerly secured) debt.

What is the prescribed part?

The "prescribed part" in insolvency proceedings is a share of the net proceeds realised from the sale of property covered by floating charges.  It is provided for by section 176A of the Insolvency Act 1986, which requires administrators, liquidators and receivers to set the prescribed part aside for distribution to the unsecured creditors.  The office holder is not permitted to distribute the prescribed part to the proprietor of a floating charge except insofar as it exceeds the amount required for the satisfaction of unsecured debts.