Validation orders under s127 Insolvency Act 1986 will only be made:
- in special circumstances
- where a particular transaction is one that is in the interests of the creditors as a whole; and
- the circumstances warrant the overriding of the pari passu principle
The appellant company supplied wholesale electrical goods to Edge Electrical Ltd (the Company). It was standard practice that the Company would pay each invoice before the last day of the month following supply of the goods. A creditor of the Company presented a winding up petition at court on 22 May 2013. The petition was not advertised until 17 June 2013, after payment had been made by the Company to the appellant in respect of goods that had been supplied (the Sum). The Company’s liquidators wrote to the appellant demanding repayment of the Sum. The appellant sought a validation order under s127 IA 1986 in respect of the Sum. The judge at first instance declined to make the order sought.
The appellant based its claim on the principle that a payment made in good faith when the parties were unaware that a petition had been presented would usually be validated.
The Judge dismissed the appeal.
It was established law that a validation order under s127 would only be made in special circumstances, where the overriding of the pari passu principle would be in the interests of the body of unsecured creditors. In the circumstances, the goods supplied were available to the Company before payment had been made, and therefore it was not in the best interests of the general body of unsecured creditors that payment be validated.