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.[1][2]
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.
An unfair preference is a legal term arising in bankruptcy law where a person or company transfers assets or pays a debt to a creditor shortly before going into bankruptcy, that payment or transfer can be set aside on the application of the liquidator or trustee in bankruptcy as an unfair preference or simply a preference.
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.His duty is to ascertain and settle the liabilities of a company or a firm.If there are any surplus assets,they are distributed to the contributories.
The case held that because the power to challenge a transaction as an unfair preference was a statutory right vested in the liquidator alone, the proceeds of any action were not "property of the company" and as such they were not caught be a floating charge which was expressed to include after acquired property (distinguishing Re Anglo-Austrian Printing & Publishing Union [1895] 2 Ch 891). Bennett J held that the proceeds were impressed by a statutory trust for the general body of creditors.[3]
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.
Facts
On 14 January 1933 the company granted a debenture which contained an all-assets floating charge in favour of H. Yager (London) Limited as chargee. The debenture contained a fairly standard provision that the charge would also attach to any after-acquired property of the company. Pursuant to the debenture the chargee advanced the sume of £200 to the company.
In corporate finance, a debenture is a medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest. The legal term "debenture" originally referred to a document that either creates a debt or acknowledges it, but in some countries the term is now used interchangeably with bond, loan stock or note. A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company's capital structure, it does not become share capital. Senior debentures get paid before subordinate debentures, and there are varying rates of risk and payoff for these categories.
Three days later, on 17 January 1933 the company made a payment of £240, 11 s, 6 d to a creditor (who is not named in the report).
The shilling (1/-) was a coin worth one twentieth of a pound sterling, or twelve pence. It was first minted in the reign of Henry VII as the testoon, and became known as the shilling from the Old English scilling, sometime in the mid-sixteenth century, circulating until 1990. The word bob was sometimes used for a monetary value of several shillings, e.g. "ten bob note". Following decimalisation on 15 February 1971 the coin had a value of five new pence. It was made from silver from its introduction in or around 1503 until 1947, and thereafter in cupronickel.
The pre-decimal penny (1d) was a coin worth 1/240 of a pound sterling. Its symbol was d, from the Roman denarius. It was a continuation of the earlier English penny, and in Scotland it had the same monetary value as one pre-1707 Scottish shilling. The penny was originally minted in silver, but from the late 18th century it was minted in copper, and then after 1860 in bronze.
On 31 March 1933 the company's members pass a resolution to put the company into voluntary liquidation. The liquidators then sought to challenge the payment to the creditor as an unfair preference under section 265 of the Companies Act 1929 (which incorporated the unfair preference regime from section 44 of the Bankruptcy Act 1914). In the December 1933 the creditor repaid the sums to the liquidator.
The Companies Act 1929 was an Act of the Parliament of the United Kingdom, which regulated UK company law. Its descendant is the Companies Act 2006.
The Bankruptcy Act 1914 is an Act of the Parliament of the United Kingdom which formed the primary source of UK insolvency law for approximately 70 years. It came into force on 1 January 1915 repealing a number of earlier statutes. It was substantially repealed by the short-lived Insolvency Act 1985.
The debenture holder then contested that those sums were caught by the debenture, and should be paid to the debenture holder in preference to the general body of creditors.
The decision was described as a "short ex tempore judgment".[1] The report of the case in the law reports is only slightly longer than a page, although that report does omit the recitation of the facts from the oral judgment.
Bennett J held that the sums did not fall within security created by the debenture. Although initially, the judgment appears to indicate that this is because the floating charge crystallised before the sum became the property of the company, later in the judgment he clarified:
“
The right to recover a sum of money from a creditor who has been preferred is conferred for the purpose of benefiting the general body of creditors, and I think Mr. Montgomery White was right when he said that the sum of money when recovered by the liquidators by virtue of s. 265 of the Companies Act, 1929, and s. 44 of the Bankruptcy Act, 1914, did not become part of the general assets of Yagerphone, Ld., but was a sum of money received by the liquidators impressed in their hands with a trust for those creditors amongst whom they had to distribute the assets of the company.[4]
”
The headnote indicates that the judgment "distinguishes" (ie. did not follow) earlier cases such as Ex Parte Cooper (1875) LR 10 Ch 510 and Willmott v London Celluloid Co (1886) 34 Ch D 147. However those decisions are barely referred to in the judgment at all, and it is not clear that they relate to the same point in any event.
Despite being a short ex tempore first instance decision, Re Yagerphone has never seriously been doubted. It has been followed in Re MC Bacon Ltd (No 2) [1991] Ch 127 and Re Oasis Merchandising Services Ltd [1998] Ch 170 amongst others.
A floating charge is a security interest over a fund of changing assets of a company or other legal person. Unlike a fixed charge, which is created over ascertained and definite property, a floating charge is created over property of an ambulatory and shifting nature. Examples of such property are receivables and stocks. The floating charge The floating charge 'floats' or 'hovers' until the point at which it is converted into a fixed charge. Once it becomes a "fixed charge" the charge attaches to the specific assets of the business. This conversion of the floating charge into a fixed charge can trigger common law jurisdictions]] it is an implied term in security documents creating floating charges that a cessation of the company's right to deal with the assets in the ordinary course of business leads to automatic crystallisation. Additionally, security documents will usually include express terms that a default by the person granting the security will trigger crystallisation.
Salomon v A Salomon & Co Ltd[1896] UKHL 1, [1897] AC 22 is a landmark UK company law case. The effect of the House of Lords' unanimous ruling was to uphold firmly the doctrine of corporate personality, as set out in the Companies Act 1862, so that creditors of an insolvent company could not sue the company's shareholders to pay up outstanding debts owed.
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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.
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