CHAPTER ONE – INTRODUCTION
Dispositions made void pursuant to the Insolvency Act 1986 are amongst the most common and mundane of insolvency related claims that lawyers and insolvency practitioners are likely to see. Nearly any person, corporate or real, who holds and exchanges assets and is made insolvent by order of the court is likely to have a number of dispositions of property that are subsequently rendered void by operation of statute. Depending on the length of the period between presentation of a petition and an insolvency order, then these might be significant and number in the thousands. This book aims to provide a basic introduction to these most regular of insolvency claims, and provide the practitioner with practical guidance for how to identify and recover void dispositions and/or defend against attempts to do so by an office-holder.
As with all insolvency related claims, it is important to remember the fundamental and defining purpose of insolvency law: to preserve, gather, and distribute the assets of an insolvency estate on an equal and ratable basis amongst the unsecured creditors proving within that estate. While the interests of secured and preferential creditors do intrude into the administration of insolvent estates from their lofty heights, this fundamental principle of equal treatment amongst the unsecured is what is commonly referred to in insolvency as the ‘pari passu’ principle, and underpins the treatment of most matters, ie. that all unsecured creditors should be treated equally without preference, and that the interests of the body of creditors as a whole is the guiding interest for insolvency proceedings. This guiding principle is highly relevant within the context of void disposition where their nature is to avoid the preferential treatment of a particular creditor who has received benefit in the ‘relevant time’ at the expenses of the greater body of creditors, and also provides one of the gateways for the granting of validation orders to avoid the effects of automatic voiding, eg. that a particular disposition benefits the greater body of creditors as a whole rather than the individual creditor involved. Any practitioner involved in an investigation or prosecution of a void disposition claim should keep this fundamental principle of insolvency law in the back of their head.
As shall be examined in this book, the basic nature of the void disposition is straight-forward as it is merely the automatic statutory consequence of an order of the court for the winding-up of a company or an individual’s personal bankruptcy, and as a result the legal basis of a claim is simple. However, the devil is always in the details, and a wise practitioner must be careful of what might be laying the tall grass of an otherwise apparently simple claim. This book seeks to simplify the practical realities of what is a void disposition, what are its exceptions, how a recipient party might defend against a claim for repayment, and how a potential insolvency person or a recipient might seek the court’s blessing to validate a specific payment. What is set out in this text is a set of examples and principles drawn not only from case-law, but also focused by my own experience at the coalface.
Throughout this text there will be copious references to the Insolvency Act 1986 and the associated Insolvency Rules 2016, which are the statute and statutory instrument that governs the insolvency regime in England and Wales. For brevity, where I refer to the Insolvency Act 1986 it shall be noted as ‘IA 1986,’ and where I refer to the Insolvency Rules 2016 it shall be noted as ‘IR 2016.’ Likewise, when I make reference to the Practice Direction on Insolvency Proceedings I shall reference it as the ‘PDIP,’ and the Civil Procedure Rules (where appropriate) as the ‘CPR.’ All other statutes will be spelled out in full, as with any other statutory instruments. I shall endeavour to use neutral citation where possible for case-law, but when one is not available (such as cases from the pre-neutral citation watershed), then I shall use the appropriate law report. I make limited to no reference to other secondary sources in the market, but encourage those with deeper questions to turn to those sources if they cannot find an answer in my text or are interested in deeper theory.
As a final note, this book focusing on the law in England and Wales, which is where I am called as a barrister. There are some differences in the insolvency regime between England and Wales and Scotland, such as the Scottish statutory causes of action for ‘gratuitous alienation’ and ‘unfair preferences’ under ss.242 & 243 IA 1986 as opposed to the English and Welsh ss.238 and 239 for transactions at an undervalue and preferences. I am not an expert in the law of Scotland, although I understand that s.127 and s.284 IA 1986 apply equally in that jurisdiction. I do not include in this text any specific Scottish case-law, and caution any of those reading this in Scotland to consider whether local case-law might lead to a different application.