A recent judgment has clarified the duty of receivers when selling secured property to a company connected to a creditor.
Background
The claimant alleged that the receivers, appointed on behalf of, and selling to a party connected to the creditor, had acted in bad faith. They had placed themselves in a position of conflict and had engaged in self-dealing. As well as dealing with this issue, the court also assessed where the burden of proof lies when allegations of failing to act in good faith are raised.
Held
This was a Court of Appeal decision which focused on s423 Insolvency Act 1986, as well as the ambit of directors' duties to creditors in a distressed company scenario. The below summary relates to the courts' analysis of the latter issue.
Facts
Appleton Papers Inc (API) was a wholly owned subsidiary of BAT Industries plc (BAT).
Key points
Care should be taken to ensure that finance documents clearly and specifically set out the intention of the parties.
Lenders should ensure that charges created in security documents are not invalidated or altered by provisions of other finance documents.
Facts
The facts
A liquidator pursued a claim against a former director of a company, that the transfer of the company’s trading inventory in satisfaction of money owed to the former director was a transaction at an undervalue and/or a preference.
An attempt was made to grant floating charge security over the inventory, which the court found was void as it was granted for existing liabilities, at a time when the company was insolvent, to a connected party.
Key points
The High Court struck out a claim by a liquidator who had already brought a claim arising from the same facts against the same defendants.
The court relied on the fact that the economic benefit of pursuing the claim would accrue only to the liquidator.
The Facts
Key Points
There is a low threshold for the granting of an injunction to prevent the presentation of a winding up petition.
The challenge against the debt in the statutory demand must be in good faith and have sufficient substance.
The Facts
In the decision of Justice Morawetz of the Ontario Superior Court of Justice (Commercial List) (the “Court”) in In the Matter of Aero Inventory (UK) Limited and Aero Inventory PLC, the Court held that proceeds of a fraudulent preference action recovered by a trustee in bankruptcy under section 95 of the Bankruptcy and Insolvency Act (“BIA”) may be subject to the rights of secured creditors, to the extent secured creditors had rights in the collateral in question at the time of the impugned transaction.
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