Re MC Bacon Ltd (No 2)

Last updated
Re MC Bacon Ltd (No 2)
RawBacon.JPG
Court High Court
Full case nameIn re MC Bacon Ltd
Decided5 April 1990
Citation(s)[1991] Ch 127
[1990] BCLC 324
Case opinions
Millett J
Keywords

Re MC Bacon Ltd [1991] Ch 127 is a UK insolvency law case relating specifically to the recovery the legal costs of the liquidator in relation to an application to set aside a floating charge as an unfair preference. [1]

Contents

The court held that because the right of action was vested in the liquidator (rather than the company itself) then those claims were not claims for realising or getting in the assets of the company, and therefore were not expenses of the liquidation. Accordingly they were not recoverable under the preferential regime reserved for expenses of the liquidation.

The court also gave useful guidance in the discussion of the proper application and context of applications by liquidators in relation to preferences and claims relating to wrongful trading.

Facts

MC Bacon Ltd was an importer of bacon which went into insolvent liquidation. Before going into liquidation the company had granted a debenture containing a floating charge in favour of its bank. At the time the company was already insolvent. The liquidator brought proceedings claiming that the debenture was either a voidable preference or a transaction at an undervalue. It also brought a wrongful trading claim against the bank as a shadow director, but that claim was abandoned during the course of trial. [2]

The bank had applied to have the entire claim struck out as disclosing no reasonable cause of action. That strike out application came before Knox J. He declined to strike out the claim, and it proceeded to trial before Millet J. The hearing before Millet J lasted 17 days who dismissed all of the liquidator's claims. [2] That decision was separately reported as Re MC Bacon Ltd (No 1) [1990] BCC 78.

The liquidator then sought an order for his costs. He accepted that he had lost the case, but he contended that the action had been properly brought (evidenced not least by the fact that it had survived a claim to strike it out). Accordingly he argued that he was entitled to have his costs paid out of the assets subject to the floating charge under the Insolvency Act 1986 under section 115 or section 175(2)(a). The liquidator relied heavily upon Re Barleycorn Enterprises Ltd [1970] Ch 465 (now overruled).

Judgment

Millett J recounted the history of the litigation. He noted that the liquidator claimed those costs not as a matter of discretion, but as of right. In Re Barleycorn Enterprises Ltd it was held that assets subject to a floating charge were assets of the company for the purposes of determining the liquidator's right to be reimbursed their expense. [3]

Primary issues

The court proceeded on the assumption that the claims were properly brought, although it noted that this was a slightly shaky assumption. Although the claims had survived a strike-out and an application for indemnity costs, the claims had failed, and a key part had been abandoned midway through trial. Millett J noted in particular that the undervalue claim was doomed from the very outset.

The crucial part of the judgment was whether the proceedings could properly be called "expenses of the winding up". The court noted that under rule 4.218(1) of the Insolvency Rules 1986 legal costs and expenses will be expenses of the winding up if they are "expenses properly chargeable or incurred by ... the liquidator in preserving, realising or getting in any of the assets of the company." [4] However, in the instant case, the court held:

The proceedings were not brought by or on behalf of the company nor were they brought in order to recover assets belonging to the company at the date of the winding up. All such assets were charged to the bank and any claim to recover them was vested in the bank. The proceedings were brought (i) to set aside the bank's charge, fixed as well as floating, as a voidable preference, and (ii) to obtain compensation for wrongful trading by way of an order for contribution to the assets of the company. Neither claim could have been made by the company itself. [4]

Obiter dictum

Although that was sufficient to dispose of the application, the court went on to consider the nature of the remedies open to the liquidator, and handed down the obiter dictum for which the case is best known.

The court noted that any sums recovered by the liquidator by way of unfair preference is not owned by the company and is not caught as after acquired property by the floating charge. Instead it is held by the liquidator on statutory trusts for the unsecured creditors, see Re Yagerphone Ltd [1935] Ch 392.

Millett J further considered whether or not Re Barleycorn Enterprises Ltd was correct to hold that assets which are subject to a floating charge should be treated as assets available to the liquidator in relation to expense claims. He expressed significant reservations as to the correctness of that position. [5] This would essentially presage a later decision of the House of Lords where, sitting as Lord Millett, he would overrule Re Barleycorn. [3]

Significance

The decision was cited with approval and followed by the Court of Appeal in Re Oasis Merchandising Services Ltd [1998] Ch 170. The doubts expressed by Millett J about Re Barleycorn would be reinforced when he sat as part of the court that overruled it in Buchler v Talbot [2004] UKHL 9.

The decision was also followed by the Court of Appeal in Re Floor Fourteen [2001] 3 All ER 499. [6] However following that decision the position was reversed in part by statute, and where the creditors committee sanctions the legal proceedings, those will be treated as expenses in the winding up. [7]

See also

Notes

  1. ↑ "IN RE M C BACON LTD: CHD 1990". swarb.co.uk. Retrieved 8 May 2017.
  2. 1 2 [1991] Ch 127, 133G-H
  3. 1 2 This decision was subsequently overruled in Buchler v Talbot [2004] UKHL 9, but the rule of law was then effectively reinstated by an amendment to the Insolvency Act 1986 to introduce section 176ZA.
  4. 1 2 [1991] Ch 127, 136D
  5. ↑ [1991] Ch 127, 138B
  6. ↑ Steven A Frieze (2004). Personal Insolvency Law in Practice. Sweet & Maxwell. 13-026. ISBN   0421798602.
  7. ↑ Insolvency Act 1986, Schedule 4, part I, paragraph 3, as inserted by the Enterprise Act 2002, section 253.

Related Research Articles

Liquidation is the process in accounting by which a company is brought to an end in Canada, United Kingdom, United States, Ireland, Australia, New Zealand, Italy, and many other countries. The assets and property of the company are redistributed. Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation. The process of liquidation also arises when customs, an authority or agency in a country responsible for collecting and safeguarding customs duties, determines the final computation or ascertainment of the duties or drawback accruing on an entry.

Wrongful trading is a type of civil wrong found in UK insolvency law, under Section 214 Insolvency Act 1986. It was introduced to enable contributions to be obtained for the benefit of creditors from those responsible for mismanagement of the insolvent company. Under Australian insolvency law the equivalent concept is called "insolvent trading".

In company law, fraudulent trading is doing business with intent to defraud creditors.

In law, a liquidator is the officer appointed when a company goes into winding-up or liquidation who has responsibility for collecting in all of the assets under such circumstances of the company and settling all claims against the company before putting the company into dissolution. Liquidator is a person officially appointed to 'liquidate' a company or firm. Their duty is to ascertain and settle the liabilities of a company or a firm. If there are any surplus, then those are distributed to the contributories.

United Kingdom insolvency law Law in the United Kingdom of Great Britain and Northern Ireland

United Kingdom insolvency law regulates companies in the United Kingdom which are unable to repay their debts. While UK bankruptcy law concerns the rules for natural persons, the term insolvency is generally used for companies formed under the Companies Act 2006. "Insolvency" means being unable to pay debts. Since the Cork Report of 1982, the modern policy of UK insolvency law has been to attempt to rescue a company that is in difficulty, to minimise losses and fairly distribute the burdens between the community, employees, creditors and other stakeholders that result from enterprise failure. If a company cannot be saved it is "liquidated", so that the assets are sold off to repay creditors according to their priority. The main sources of law include the Insolvency Act 1986, the Insolvency Rules 1986, the Company Directors Disqualification Act 1986, the Employment Rights Act 1996 Part XII, the Insolvency Regulation (EC) 1346/2000 and case law. Numerous other Acts, statutory instruments and cases relating to labour, banking, property and conflicts of laws also shape the subject.

<i>Re MC Bacon Ltd</i> (No 1)

Re MC Bacon Ltd [1990] BCLC 324 is a leading UK insolvency law case, concerning transactions at an undervalue and voidable preferences.

<i>Re Barleycorn Enterprises Ltd</i> British case on insolvency

Re Barleycorn Enterprises Ltd [1970] Ch 465 is a UK insolvency law case, concerning the priority of creditors in a company winding up. It was held that fees for liquidation came in priority to preferential claims and floating charges. This was overturned by the House of Lords in Buchler v Talbot, but reinstated by Parliament through an amendment to the Insolvency Act 1986 s 176ZA.

<i>Re Parkes Garage (Swadlincote) Ltd</i>

Re Parkes Garage (Swadlincote) Ltd [1929] 1 Ch 139 is a leading UK insolvency law case, concerning a voidable floating charge for past value.

<i>Re Grays Inn Construction Co Ltd</i>

Re Gray’s Inn Construction Co Ltd [1980] 1 WLR 711 is a leading UK insolvency law case, concerning the cessation of transactions without court approval after a winding up petition.

<i>Re Anglo-Austrian Printing & Publishing Union</i>

Re Anglo-Austrian Printing & Publishing Union [1895] 2 Ch 891 is a UK insolvency law and company law case, concerning recovery of assets under a misfeasance action. It was held that because the claims were vested in the company before the company went into liquidation, the proceeds of such a claim would be caught by a floating charge where the floating charge was expressed to include any after-acquired property.

<i>Re Oasis Merchandising Services Ltd</i>

Re Oasis Merchandising Services Ltd [1998] Ch 170 is a UK insolvency law and company law case, concerning wrongful trading.

<i>Buchler v Talbot</i>

Buchler v Talbot[2004] UKHL 9 is a UK insolvency law case, concerning the priority of claims in a liquidation. Under English law at the time the expenses of liquidation took priority over the preferred creditors, and the preferred creditors took priority over the claims of the holder of a floating charge. However, a crystallised floating charge theoretically took priority over the liquidation expenses. Accordingly the courts had to try and reconcile the apparent triangular conflict between priorities.

Cayman Islands bankruptcy law

Cayman Islands bankruptcy law is principally codified in five statutes and statutory instruments:

Australian insolvency law regulates the position of companies which are in financial distress and are unable to pay or provide for all of their debts or other obligations, and matters ancillary to and arising from financial distress. The law in this area is principally governed by the Corporations Act 2001. Under Australian law, the term insolvency is usually used with reference to companies, and bankruptcy is used in relation to individuals. Insolvency law in Australia tries to seek an equitable balance between the competing interests of debtors, creditors and the wider community when debtors are unable to meet their financial obligations. The aim of the legislative provisions is to provide:

Provisional liquidation is a process which exists as part of the corporate insolvency laws of a number of common law jurisdictions whereby after the lodging of a petition for the winding-up of a company by the court, but before the court hears and determines the petition, the court may appoint a liquidator on a "provisional" basis. Unlike a conventional liquidator, a provisional liquidator does not assess claims against the company or try to distribute the company's assets to creditors, as the power to realise the assets comes after the court orders a liquidation.

Hong Kong insolvency law

Hong Kong insolvency law regulates the position of companies which are in financial distress and are unable to pay or provide for all of their debts or other obligations, and matters ancillary to and arising from financial distress. The law in this area is now primarily governed by the Companies Ordinance and the Companies Rules. Prior to 2012 Cap 32 was called the Companies Ordinance, but when the Companies Ordinance came into force in 2014, most of the provisions of Cap 32 were repealed except for the provisions relating to insolvency, which were retained and the statute was renamed to reflect its new principal focus.

<i>Stichting Shell Pensioenfonds v Krys</i>

Stichting Shell Pensioenfonds v Krys[2014] UKPC 41 was a decision of the Privy Council on appeal from the British Virgin Islands relating to an anti-suit injunction in connection with an insolvent liquidation being conducted by the British Virgin Islands courts.

<i>Ayerst (Inspector of Taxes) v C&K (Construction) Ltd</i>

Ayerst v C&K (Construction) Ltd [1976] AC 167 was a decision of the House of Lords relating to revenue law and insolvency law which confirmed that where a company goes into insolvent liquidation it ceases to be the beneficial owner of its assets, and the liquidator holds those assets on a special "statutory trust" for the company's creditors.

<i>Brooks v Armstrong</i>

Brooks v Armstrong[2016] EWHC 2289 (Ch), [2016] All ER (D) 117 (Nov) is a UK insolvency law case on wrongful trading under section 214 of the Insolvency Act 1986.

<i>Re Yagerphone Ltd</i>

Re Yagerphone Ltd [1935] 1 Ch 392 was a United Kingdom insolvency law decision relating to unfair preferences and the proceeds of any claims by a liquidator for unfair preferences, and in particular determining the priority of claims between the general body of creditors and the holder of a floating charge.

References

This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.