A liquidator claimed that the costs of an unsuccessful attempt to set a floating charge aside should be paid out of the assets subject to the charge in priority to the claims of the charge holder.
Held: The rule was a complete statement of the possible expenses to be paid out under the rules: ‘The expenses of the winding up and the order on which they are payable out of the assets are listed in rule 4.218(c).’ S238 requires a comparison of incoming value, assessed in money or money’s-worth with outgoing value assessed in money or money’s-worth from the point of view of the insolvent estate.’ and ‘To come within that paragraph [238(4)] the transaction must be (i) entered into by the company; (ii) for a consideration; (iii) the value of which is measured in money or money’s worth; (iv) is significantly less than the value; (v) also measured in money or money’s worth; (vi) of the consideration provided by the company. It requires a comparison to be made between the value obtained by the company for the transaction and the value of [the] consideration provided by the company. Both values must be measurable in money or money’s worth and both must be considered from the company’s point of view.’ The grant of security cannot constitute a transaction at an undervalue.
Millett J: ‘The mere creation of a security over a company’s assets does not deplete them and does not come within the paragraph. By charging its assets the company appropriates them to meet the liabilities due to the secured creditor and adversely affects the rights of other creditors in the event of insolvency. But it does not deplete its assets or diminish their value. It retains the right to redeem and the right to sell or remortgage the charged assets. All it loses is the ability to apply the proceeds otherwise than in satisfaction of the secured debt. That is not something capable of valuation in monetary terms and is not customarily disposed of for value. In the present case the company did not suffer that loss by reason of the grant of the debenture. Once the bank had demanded a debenture the company could not have sold or charged its assets without applying the proceeds in reduction of the overdraft; had it attempted to do so, the bank would at once have called in the overdraft. By granting the debenture the company parted with nothing of value, and the value of the consideration which it received in return was incapable of being measured in money or money’s worth.’
Judges:
Millett J
Citations:
[1991] Ch 127, [1990] BCLC 324
Statutes:
Jurisdiction:
England and Wales
Citing:
At trial – Re: A Company (No. 005009 of 1987), ex parte Copp ChD 1988
MC Bacon Ltd had borrowed money from a bank. The loan was unsecured. The company got into financial difficulty. The bank commissioned a report on the company’s financial affairs; and insisted on the grant of a debenture to secure the company’s . .
Cited by:
Cited – Kahn and Another v Commissioners of Inland Revenue; In re Toshoku Finance plc HL 20-Feb-2002
A company went into liquidation, being owed substantial sums by another company in the same group, but itself insolvent. A settlement did not include accrued interest, but was claimed to be taxed as if it had, and on an accruals basis. If so, was . .
Cited – Buchler and another (as joint liquidators of Leyland DAF Limited) v Talbot and another (as joint administrative receivers of Leyland DAF Limited) and Stichting Ofasec and others HL 4-Mar-2004
The liquidator sought to recover his expenses from assets charged under a floating charge in priority to the chargee.
Held: Barleycorn was decided in error. The liquidators costs incurred in an insolvent winding up were not to be charged . .
Cited – Re Thoars (Dec’d); Reid v Ramlort Ltd ChD 2003
The company claimed the benefit of an insurance policy. They had paid certain premiums and the trustee had made a declaration that it was held on trust for the company. The insured died in Scotland, intestate and insolvent.
Held: The . .
Cited – Ramlort Ltd v Michael James Meston Reid CA 8-Jul-2004
The company sought to claim under a life policy. The deceased had died in Scotland insolvent. The trustee of the policy had declared that he held it on trust for the claimant, but the defendant, the judicial factor of the estate, said the . .
Cited – Ultraframe (UK) Ltd v Fielding and others ChD 27-Jul-2005
The parties had engaged in a bitter 95 day trial in which allegations of forgery, theft, false accounting, blackmail and arson. A company owning patents and other rights had become insolvent, and the real concern was the destination and ownership of . .
Cited – Feakins and Another v Department for Environment Food and Rural Affairs (Civ 1513) CA 9-Dec-2005
The department complained that the defendants had entered into a transaction with their farm at an undervalue so as to defeat its claim for recovery of sums due. The transaction used the grant of a tenancy by the first chargee.
Held: The . .
Cited – Hill (As Trustee In Bankruptcy of Nurkowski) v Spread Trustee Company Ltd and Another CA 12-May-2006
The defendants sought relief for transactions entered into at an undervalue. The bankrupt had entered into charges and an assignment of a loan account in their favour before his bankruptcy, and the trustee had obtained an order for them to be set . .
Cited – Haines v Hill and Another CA 5-Dec-2007
On the divorce, the husband was ordered to transfer his share in the house to the wife. On his bankruptcy shortly after, the order was confirmed. After the wife sold the property at a profit, the trustee in bankruptcy applied to set the transfer . .
Lists of cited by and citing cases may be incomplete.
Insolvency
Updated: 12 May 2022; Ref: scu.190092