Who do ring-fencing provisions apply to?

Ring-fencing provisions are primarily designed to protect certain groups of stakeholders in a company, particularly in the context of insolvency. These provisions establish a protective barrier around specific assets or classes of creditors to ensure they have a greater chance of recovering their debts.

In this context, unsecured creditors are the correct focus for ring-fencing provisions. These creditors do not have a claim over specific assets but instead are ranked lower in terms of recovery during insolvency proceedings compared to secured creditors. Ring-fencing provisions can offer additional layers of security, thereby increasing the likelihood that these unsecured creditors may recover some or all of their debts under certain circumstances.

This protection is essential as unsecured creditors typically face higher risk and lower recovery rates in the event of a company failing, and ring-fencing provisions help to address this imbalance by ensuring that their interests are safeguarded.

Other stakeholders, such as members, floating charge holders, and fixed charge holders, hold different positions within a company's hierarchy of creditors and generally have different means of securing their debt claims. Because of these differences, the focus of ring-fencing remains on the unsecured creditors who are at a heightened risk in insolvency scenarios.