Vol 14 (2017) - Issue 1

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Express Electrical Distributions: Sparking New Life Back into the Pari Passu Principle

Introduction
In the recent decision of Express Electrical Distributions Limited v. Beavis and Ors [2016] EWCA Civ 765, the Court of Appeal discussed the circumstances in which it is appropriate to validate dispositions of a company’s property after a winding up order is deemed to commence. The decision provides much-needed clarity in an area that is fraught with tensions between considerations of fairness to individual creditors and the treatment of the general body of creditors. However, the Court of Appeal expressly left open the question of where the balance lies in certain borderline circumstances.

Disposals of a company’s property after winding up
Section 127(1) of the Insolvency Act 1986 states that in a winding up by the court, any disposition of the company’s property made after the commencement of the winding up is void, unless the court otherwise orders. Pursuant to section 129(2), in most cases the winding up of a company by the court is deemed to commence at the time of the presentation of the winding up petition.
The interaction between sections 127 and 129 means that there is a period between the presentation of the winding up petition and the making of the order where dispositions of property may be held to be void. If a disposition is void as a result of section 127, the party to whom the disposition was made must transfer the property in question back to the company’s estate for the benefit of the company’s creditors.
Parties may nonetheless apply to the court for an order that certain dispositions be validated, such that section 127 does not apply to them (a 'Validation Order'). A Validation Order may be made on a prospective basis (i.e. an order that a future disposition will not be void) or on a retrospective basis (i.e. an order that a disposition already made is not void). The Court of Appeal in Express Electrical sought to clarify the circumstances in which a Validation Order would be made.