The volume of voidable transaction traffic in the courts last year was similar to 2015 but – unlike 2015 – there were no significant developments in the law.
That will not be the case this year, as we are expecting the Supreme Court's decision in McIntosh v Fisk and the final report from the working group on insolvency.
Cases in 2016
Eleven judgments from nine proceedings dealing substantively with voidable transactions under s 292 of the Companies Act 1993 were issued last year, including two at appellate level.1 Two were applications for discovery. In the other seven, liquidators:
- obtained a recovery in five cases, three of which constituted partial recovery, and
- were denied recovery in two cases, one because the other party was not a creditor.
Case law in this area in 2016 largely constituted direct application of the law to the facts. However, key concepts affirmed by some of the cases are worth noting.
Section 292 requires a debtor/creditor relationship. Without this relationship, there is no voidable transaction as there is no preference between creditors. The onus is on the liquidator to establish that the other party is a creditor. (See the Court of Appeal decision in Time3 Global Limited v Norrie).
Liquidator's Personal Liability
Where the proceeding is in the liquidator's own name, the liquidator will be personally liable for adverse costs. It makes no difference that there may be insufficient funds in the liquidation to reimburse the liquidator. (See the High Court decision in Norrie v Time3 Global Limited).
Where a liquidator causes the company to sue in its own right, the usual policy adopted by the courts is that the liquidator can be regarded as acting in the interests of the company's creditors rather than in his or her own interests.
Courts do not want to discourage liquidators from litigating where that may be beneficial for creditors. It is difficult to see how a voidable transaction claim is any different, save only that the liquidator is required to sue in his or her own name.
Repossession does not constitute a transaction by a company. However, transactions which create a charge over property, incurring a repossession obligation, can be avoided under s 292.
Where the purpose of various payments is merely to repay debts, there is no running account. The s 292(4B) continuing business relationship defence cannot apply.
Coming up this year
McIntosh v Fisk
The Supreme Court heard this Ponzi case in July 2016. Its judgment, due this year, will be an opportunity for the Court to comment on the exact reach of its earlier decision in Fences & Kerbs.
Insolvency working group
The law on voidable transactions will be covered in the working group's second and final report, the release of which may create an opportunity for public consultation on whether the law, after the Fences & Kerbs decision, is working.
Chapman Tripp will continue to track and report on the treatment of voidable transaction claims by the courts.