Preservation of Insolvent Debtor's Assets Flashcards
Insolvency Act 1986, s.127
In winding up by the court (compulsory), any disposition of the company’s property/transfer of shares/change of status member made after commencement is void (unless court orders otherwise)
Insolvency Act 1986, s.129(2)
Commencement of winding up is at the presentation of the petition
Insolvency Act 1986, s.103
On appointment of a liquidator, all the powers of the directors cease
Insolvency Act 1986, s.114
If no liquidator appointed, the powers of the directors shall not be exercised, except with the sanction of the court
(Except disposing of perishable goods and goods likely to diminish in value, act for necessary protection of the company’s assets)
Insolvency Act 1986, s.166
In voluntary winding up, where a liquidator nominated by the company, the powers conferred on the liquidator shall not be exercised except with the sanction of the court (during period before holding of the creditors’ meeting)
Insolvency Act 1986, s.284(1)(3)(4)
Doctrine of “relation back” abolished in bankruptcy (now same effect as s.127) - dispositions void unless ratified by the court.
The provisions do not give a remedy against any person receiving property/payment in good faith, before commencement without notice of presentation of petition (no court discretion).
Sub-transferee protection.
Re French’s (Wine Bar) Ltd [1987] BCLC 499
Case: Debtor contracted to sell land; winding up petition presented by sale completed; is sale a void disposition of company property?
Decision: Although the company had the right to rescind the contract if it was unable to obtain the necessary consent to the assignment from the lessor, in practice the contract could not have been rescinding since the company had no money to repay the deposit and the company had been operating the business for a period of time.
Rule: Where, before the presentation of a winding-up petition, a company has entered into an unconditional contract for the sale of property which is specifically enforceable, then the completion of the contract according to tis terms after the petition has been presented would not constitute a disposition. Where, however, the contract was conditional or voidable the waiver of confirmation of the contract, or any variation of its terms, might constitute a disposition of the property of the company.
N.B. Unless a contract entered into by a company in liquidation is quite plainly specifically enforceable and there is no possible defence it would be prudent to seek the approval of the court for the completion of the contract
Insolvency Act 1986, s.307(3)(4)
Property acquired after commencement of bankruptcy:
- Can be claimed by trustee by notice in writing
- The trustee’s title relates back to original property, so irrelevant if bankrupt has spect money on new things; trustee can claim that new property
- Protection of sub-transferee
Re The Civil Service and General Store Ltd (1887) 57 LJ Ch 119
Exercise of the court’s discretion: payments to pre-petition creditors in winding-up
Case: 23 Feb supplier of goods to company sued for £320 due; 25 Feb company persuaded supplier to continue supplying by promising to pay £174 forthwith and pay for future supplies in cash; same day winding-up petition presented and further petitions presented on 28 Feb and 7 Mar; Company paid £13 in cash for goods supplied on 7 Mar and paid promised £175; 24 Mar winding up order made and liquidator claimed repayment of £175 and £13
Decision: The winding up order having been made, the payment of the £13 was allowed (void disposition unless the court validates - court validated as added goods of same value of debt to the estate), but the £175 was ordered to be repaid (court will not validate pre-petition debt - contravenes pari passu)
Rule: Where such payment has effect of preferring the creditor it will not be validated even though no desire to prefer creditor i.e. desire to prefer irrelevant once the petition has been presented
N.B. Matter of discretion, but court tend to follow
Re AI Levy (Holdings) Ltd [1964] Ch 19
Exercise of the court’s discretion: payment’s to pre-petition creditors in winding-up
Case: Petition presented against company which owed its landlord £2,000 rent arrears; company was offered £3,000 for lease; landlord agreed not to forget lease but consent to assignment provided arrears paid and court validated assignment
Decision: Net benefit of £1,000 so court validated
Rule: Unless the payment benefits the general body of creditors
Insolvency Act 1986, s.284(1)(4)
Exercise of the court’s discretion: payment’s to pre-petition creditors in bankruptcy
Where a person is adjudged bankrupt, any disposition of property made by that person in the period is void unless ratified by the court except to extent (4) applies
(see handout p.2 for example)
Treherne v Forrester [2004] BPIR 338
Exercise of the court’s discretion: gratuitous dispositions
Case: Divorce proceedings between debtor and spouse began in 2000; bankruptcy petition against debtor presented 13 Feb 2002 (£5m owed to the Inland Revenue); 3 May court ordered transfer of debtor’s interest in family home to spouse contingent on divorce decree becoming final which it did on 9 May (property adjustment order); further assets transfer order on 28 May and court executed transfer of debtor’s interest in family home; bankruptcy order made in July and the debtor’s estate vested in the trustees in bankruptcy immediately; proceedings brought against wife to determine the efficacy of the May orders
Decision: A property adjustment order fell within the meaning of ‘disposition of property’ and was a void disposition that the court would not validate
N.B. If transfer had been on 3 Jan, the trustee would use transaction at an undervalue cf Hill v Hayes “divorce is value” so cannot set aside (questionable)
Mond v Hammond Suddards [1996] 2 BCLC 470
Exercise of the court’s discretion: what happens to property recovered by the liquidator where there is a floating charge over all the company’s property? Case 3
Money recovered by liquidator from a creditor of company on grounds the payment was void under s.127 is subject to a floating charge over company’s assets
“…since the payment in the instant case was void, according to s.127, that money remained all along the property of the company. As such it is caught by the terms of the debenture” per Kolbert J
Re Anglo-Austrian Printing and Publishing Union [1895] 2 Ch 891
Exercise of the court’s discretion: what happens to property recovered by the liquidator where there is a floating charge over all the company’s property? Case 1
Money recovered by liquidator from officers of company using misfeasance procedure (s.212) is subject to a floating charge over company’s assets
Re Yagerphone Ltd [1935] Ch 392
Exercise of the court’s discretion: what happens to property recovered by the liquidator where there is a floating charge over all the company’s property? Case 2
Money recovered by liquidator from creditor of company on grounds payment was a preference which was “void as against the liquidator” is not subject to a floating charge over company’s assets
“… at the time when the securities contained in the debenture crystallised, the £240 was not the property of Yagerphone Ltd… nor property in respect of which it could be said that Yagerphone Ltd had even a contingent interest” per Bennett J