Putting assets out of reach of creditors—Re Barons Finance Ltd (in liquidation)

Putting assets out of reach of creditors—Re Barons Finance Ltd (in liquidation)

What happens when the directors of a company in liquidation refuse to cooperate with the liquidator and/or a company—prior to liquidation—seek to put assets out of reach of the company’s creditors? Felicia Davy, a barrister at Thomas Bingham Chambers, advises that provisions of the Insolvency Act 1986 (IA 1986) provide a useful mechanism by which to defeat such conduct and should be readily deployed.

Original news

Re Barons Finance Ltd (in liquidation) [2015] EWHC 2007 (Ch), [2015] All ER (D) 126 (Jul)

A company had assigned its book debts and gone into liquidation. The liquidator applied to have the assignment set aside. The Chancery Division allowed the application as, on the evidence, the assignment had been fraudulently backdated and was automatically avoided under IA 1986, s 127 as having occurred after the winding-up petition had been presented against the company.

What was the background to this case?

The case involved a company in liquidation (BFL) that had been in the business of money lending. Many of the loans made by the company prior to liquidation were subject to the requirements of the Consumer Credit Act 1974 (CCA 1974) meaning that if the loans failed to comply with CCA 1974, the loans would be unenforceable without retrospective validation by the Financial Conduct Authority. This has been the subject of numerous linked cases.

In this case, following a winding-up order made against BFL, the liquidator sought information from the third respondent (G) as to the value of all debts owed to the company, whereupon he was told that the entirety of the company’s book debts had been assigned to the first and second respondents six months prior to the winding-up order having been made and before the winding-up petition had been presented. Consideration for the assignment was the payment of a debt owed by BFL to a third party. On the face of if, notwithstanding

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About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.