Liquidators of Changtel Solutions UK Ltd v G4S Secure Solutions (UK) Limited

Background

The English High Court recently considered an application by a company in liquidation and the joint liquidators seeking to recover five payments of varying amounts totalling £47,053.28 allegedly paid by the Company to G4S Secure Solutions (UK) Limited between the presentation of the winding up petition on 7 June 2013 and the making of the winding up order on 28 January 2015. The Applicants maintained that all five payments were void under s. 127 Insolvency Act 1986.

The Respondent disputed this application on the basis that any claim was time-barred under s. 9 of the Limitation Act 1980; the First Payment was made before presentation and therefore could not be void; the Court should validate the payments under s. 127 of the 1986 Act; and/or the Respondent changed its position and has a defence to the restitutionary claim arising by reason of s. 127 of the 1986 Act.

Decision

Taking the issue of time-bar first, the Court found that under English law the prescriptive period runs from the date of the winding-up order, not the date of the payment. The Application was issued less than 6 years after the making of the order.

In terms of the First Payment being made before presentation, the Court held that although the cheque was signed before presentation, as the debiting of money from the Company’s bank account did not occur until after the date of presentation, the payment was caught under s. 127 and was therefore void.

The Court was also unwilling to grant validation of the payments. The Respondent had not applied for validation and the court does not automatically consider whether it should validate a post-petition payment when hearing an application for a declaration that the payment is void. The Liquidators argued that validation would not be of any benefit to the Company’s creditors and there was no other grounds to justify the making of an exception to the basic principle of pari passu distribution. The court agreed and declined validation because no special or exceptional grounds had been established justifying validation.

Lastly, the Court considered an argument from the Respondent that since the winding-up petition had not been advertised, payment had been accepted from the Company in exchange for providing security services and therefore this changed its position to its detriment believing that payment was valid. The Court was not persuaded and held that the respondent’s continued provision of services (of no benefit to creditors as a whole), in exchange for payment, did not qualify as a change of position rendering it unjust to require repayment under section 127.

Analysis

This judgment should make for good reading for insolvency practitioners and their legal advisers in their attempts to recover sums under s. 127. Even if there is a change of position, it is one of many considerations alongside policy imperative or pari passu distribution, and on this may not be a strong enough factor to justify validation. Obviously this is an English matter so it is not binding in Scotland but, as with the vast majority of insolvency litigation, unless the underlying substantive law is different, it is not unreasonable to expect that the Scottish courts would adopt a similar approach in their reasoning.

 

BBM Solicitors specialise in advising IP’s in both contentious and non-contentious matters (including transactional work). Contact: Eric Baijal (emb@bbmsolicitors.co.uk).This briefing note is current as at 28 July 2022 and is our understanding of the position described at that date. Legal advice ought to be taken before relying on its terms (particularly to ensure the law has not changed).