Can Creditors retain payments received after the commencement of a Winding Up?

It is relatively common for the liquidator of a company to seek an order of court that a payment made to a creditor after the commencement of a liquidation be declared void ( and therefore returnable to the liquidator ) pursuant to the provisions of section 127 of the Insolvency Act 1986. This action by a liquidator is based upon the general legal principle that in cases of insolvency the position of creditors, and the availability of the insolvent company’s monies and assets for the benefit of all that company’s creditors, should be preserved as it was at the commencement of the winding up.

In the recently decided case of Dingley and Others v Nisa Retail Ltd ( Re MKG Convenience Limited – in liquidation ) [2019] EWHC 1383 (Ch) Nisa, a creditor who continued to receive payments from the company in liquidation after the commencement of the winding up, while accepting that these receipts were likely to be deemed void against the liquidator, sought a validation order from the court to validate the payments on the basis of a “change of position”, i.e that it had no knowledge of the commencement of the winding up proceedings and acted in good faith.

On hearing the evidence submitted by Nisa the judge was of the view that the defence of “change of position” was available to Nisa. However, in this instance he was of the view that Nisa had failed to query its receipt of payments from MKG ( the company now in liquidation ) despite acknowledging that its own systems included checks of notices in the London Gazette which would have included notice of the winding up petition, and that Nisa should also have been on the alert due to evidence that it had been aware of moves by the directors of MKG to dispose of the business. In these circumstances the judge was of the view that Nisa had not acted in good faith and was unwilling to make a validation order.

In the light of this decision, should you wish to discuss the legal principles involved or understand what should be defined as the commencement of insolvency, please contact Chamberlain & Co on 0113 2420808 or on advice@chamberlain-co.co.uk.