Key Point

Judgment sets out the rationale behind validating three payments made by a Company after the presentation of a winding up petition.

The Facts

This was the third application made by Sahaviriya Steel Industries UK Limited (the “Company”) in connection with payments made that would require validation under s127 Insolvency Act 1986. The payments were necessary to keep part of its business going pending discussions on sale or restructuring.

The Decision

The Judge considered the principles set out in Re Grays Inn Construction Co Ltd [1980] 1WLR, specifically: that the purpose of s127 is to preserve the assets of an insolvent company so that they can be distributed to the creditors pari passu. To validate a proposed payment in the period between the presentation of a winding up petition and the making of a winding up order; the court had to ensure that the interests of the unsecured creditors were not prejudiced.

On the facts, the unsecured creditors only stood to receive any monies if the company avoided liquidation. There was reasonable prospect that the alternative strategies – aimed at rescue of the Company – might be achieved if such payments were ratified by the court.

Comment

In deciding whether to validate payments subject to s127 Insolvency Act 1986 the court will consider both the prospects of the company and any potential prejudice to unsecured creditors. A private hearing is possible where the situation is commercially sensitive and disclosure would harm attempts to sell or restructure the business.

Sahaviriya Steel Industries UK Limited and Hewden Stuart Limited [2015] EWHC 2726 (Ch)