Marshalling, subrogation and Agricultural Credits Act security (McLean v Berry)

Marshalling, subrogation and Agricultural Credits Act security (McLean v Berry)

Louis Doyle, barrister at Kings Chambers, explains the background to the case of McLean v Berry and considers the implications of the judgment for insolvency practitioners with regards to the principle of marshalling and the circumstances in which the doctrine of subrogation will not operate.

Original news

McLean and another (as Joint Administrators of Dent Company (a partnership) (in administration)) v Berry and others [2016] EWHC 2650 (Ch), [2016] All ER (D) 18 (Nov)

The Chancery Division ruled on an application by the joint liquidators of a partnership (in administration) for directions, under paragraph 63 of Schedule B1 to the Insolvency Act 1986 (IA 1986). The court held, among other things, that the fourth respondent, who had loaned money to the partnership, was entitled to claim the proceeds of assets subject to an agricultural charge by the application of the principle of ‘marshalling’ and to prove as an unsecured creditor in the administration for any shortfall, in circumstances where a bank had had the right to resort to two securities in support of its lending to the partnership and where the fourth respondent had had a right to resort to one security in support of her lending to the partnership, a company connected to the partners and to the partners personally. The court further held that the trustees in bankruptcy of the partners did not have a claim based on unjust enrichment and were not entitled to claim in the administration of the partnership by operation of the doctrine of subrogation.

What was the case about?

The case involved an application by the joint administrators of a partnership that engaged in pig farming and haulage for directions under IA 1986, Sch B1, para 63 as to the correct distribution of the partnership’s funds. There were four respondents to the application. The first three were the joint trustees of the bankruptcy estates of the three individual partners in

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