In Bailey v Angove's Pty Limited  UKSC 47, the UK Supreme Court affirmed two principles of critical significance to insolvency practitioners. The first is that even if the parties should agree that an agent's authority is irrevocable, it will not be treated as such unless such non-revocation is intended to secure the financial interest of the agent. The second is that when money is paid to an agent for a consideration that the agent knows at the time of receipt must fail because of the agent's imminent insolvency, such receipt will not give rise to a remedial constructive trust over those funds in favour of its principal.
The case concerned an agency and distribution agreement for the sale of wine between Angove's Pty Ltd (Angove's), as principal and seller, and D&D Wines International Limited (D&D), as agent and distributor. At the time of D&D's insolvency, there was A$874,928.81 payable to D&D from its customers, for which it was required to account to Angove's. Angove's purported to terminate the agency on insolvency, and sought to collect the amounts payable directly from D&D's customers, and then separately account to D&D for its commission.
The Supreme Court held that Angove's was entitled to revoke the agency and collect on the outstanding amounts, on the basis that the agency was not expressly or impliedly irrevocable, and even if it were, it did not secure the financial interest of D&D in collecting its commission. Had the Court needed to decide the constructive trust point, it would not have declared that D&D held the outstanding amounts on trust for Angove's.
The decision is significant because it signals the courts' unwillingness to cut across the pro rata distribution of the insolvent's estate by imposing a remedial constructive trust, which transforms an unsecured debt into essentially a secured claim.
See Court decision here.