Defence to a section 127 claim fails – again

Defences to claims brought under section 127 of the Insolvency 1986 are limited as this recent decision demonstrates.

This case concerned five payments which left a company’s bank account after the presentation of a winding up petition. The claim succeeded in respect of each payment, but a number of interesting points arise from the judgement.

  1. Where a cheque is supplied before the presentation of a petition, but funds clear after that, the payment is void because the debit from the account constitutes the disposal
  2. The limitation period is six years from the date of the winding up order – even though a validation order could have been sought from the date of the petition
  3. It is for the receiving party to demonstrate that special or exceptional circumstances exist to merit validation of the payments. That could not be done where unsecured creditors were much worse off as a result of the post-petition trading. Lack of knowledge of the petition, or the failure to advertise it (which was unusual), were neither special nor exceptional circumstances
  4. There was conflicting authority on whether a change of position defence was available at all. ICCJ Barber preferred the view of HHJ Cooke in MKG Convenience Ltd [2019] BCC 1070 that it was in principle, but that there was a strong public policy purpose behind the section. For a change of position defence to be made out, a defendant would need to effectively demonstrate unfairness to them which outweighs that policy imperative. It is difficult to see how it could arise in the absence of factors that would otherwise justify validation.

Re Changtel Solutions UK Ltd [2022] EWHC 694 (Ch)

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