Reported Case On A Successful Application By A Liquidator For Restitution Under Section 127 Of The Insolvency Act 1986 ' Change Of Position Defence Rejected

• Published date: 26 May 2023
• Subject Matter: Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Insolvency/Bankruptcy
• Law Firm: Weightmans
• Author: Mr Oliver Nelson and Shevy Narendra

Liquidator successful following failed retrospective validation order proceedings by respondent - change of position defence rejected

Weightmans has successfully acted for a liquidator of a company seeking a declaration that payments out of a company's bank account are void pursuant to section 127 of the Insolvency Act ("IA") 1986 in circumstances where the respondent had previously applied for a retrospective validation order which was dismissed. The respondent opposed the liquidator's application for a declaration relying on a change of position defence. A hearing was held on 6 December 2022 and DJ Bond handed down judgment on 9 May 2023.

Background

• James Court Limited ("the company") entered compulsory liquidation following a winding up petition presented by the liquidator of Think Accounting Limited on 30 January 2019.
• On 11 February 2019, the winding up petition was served on the company.
• The company made payments totalling '37,000 to Hindsight Contractors Limited ("the respondent") by bank transfer on 12 February 2019 and 13 February 2019.
• The winding up petition was advertised on 25 February 2019.
• A winding up order was made against the company on 9 April 2019. As such, the company paid the respondent between the date of the petition and the winding up order.
• The liquidator of the company was appointed on 9 May 2019.
• The respondent's application for a validation order in respect of these payments was dismissed by HHJ Kelly on 27 August 2021.
• The liquidator of the company issued an application against the respondent on 7 June 2022 for recovery of these payments plus interest on the basis that these payments were void pursuant to section 127 IA 1986.

Despite the respondent's failed application for a validation order, the respondent nevertheless opposed the liquidator's application on the basis that (1) as at 1 February 2022, the company was allegedly indebted to a company called Proactive Payroll Services Limited ("PPSL") in the sum of '26,500; (2) on 28 January 2019, PPSL, the company and the respondent agreed that, if the company could not repay its alleged indebtedness to PPSL, "Hindsight Accountants" and/or "Hindsight Contractors" would satisfy the company's alleged debt to PPSL; (3) the respondent paid '30,000 to PPSL in three instalments purportedly in satisfaction of the Company's alleged debt to PPSL; and (4) the respondent has therefore changed its position, such that it would be inequitable to require the respondent to repay the sum of...