Facts

The appellant is a company trading in electrical goods which regularly supplied Edge Electrical Ltd ('Edge'). Their standard terms provided Edge with a short period of credit before payment was required.

On 29 May 2013, Edge paid the appellant £30,000 for goods and the appellant provided further goods worth around £13,000 in return. However, a petition had been presented on 23 May 2013 and Edge’s liquidators subsequently sought to recover the £30,000 paid. The appellant sought a validation order, which was refused on the basis that the general body of unsecured creditors would be prejudiced if validation of the payment was ordered.

Held

The appeal was dismissed. The Court of Appeal followed the decision in Gray’s Inn Construction Co Ltd [1980] 1 WLR 711 and held that a validation order under s 127 of the Insolvency Act 1986 should only be made after the presentation of a winding up petition if there are special circumstances showing that it is for the benefit of the general body of creditors. The court agreed that whether or not a disposition was carried out in good faith in the course of business was not a relevant consideration when deciding whether to make a validation order.

As an example, at para 21, the court stated that a disposition may be validated if it would result in the fulfilling of obligations under a lucrative contract with profits outweighing the value of the assets consumed as this would be to the advantage of the general body of creditors.