Vol 16 (2019) - Issue 6

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Valuation of Services for the Purposes of Section 245 of the Insolvency Act 1986

Synopsis

Section 245 of the Insolvency Act 1986 ('IA 1986') declares certain floating charges automatically invalid if they were created within a specific time before the commencement of an administration or winding-up of the chargor, subject to certain exceptions. Floating charges are not invalid to the extent that they secure new value provided in the form of money, goods or services or a reduction (including a discharge) of a debt of the chargor. In Re Peak Hotels and Resorts Ltd Crumpler and another (joint liquidators of Peak Hotels Resorts Ltd) v Candey Ltd [2019] EWCA Civ 345 the Court of Appeal (the 'Court') provided clarification and guidance in relation to the valuation of services provided to a chargor under a fixed fee agreement where payment for those services had been secured by a floating charge. The Court made clear that a floating charge is valid only to the extent of the value of the services actually supplied under the fixed fee agreement. That was so irrespective of the fact that the fixed fee arrangement might provide for a facility for the chargor to draw on as many services under the fixed fee agreement as required. To the extent that the value of the services actually supplied fell short of the full amount of the fixed fee - and the floating charge therefore did not cover the whole of the fixed fee - the difference remained provable in the insolvency proceedings as an unsecured claim.