Vol 9 (2012) - Issue 4

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The Life and (Untimely) Death of the Anti-Deprivation Principle

Introduction
In November 1968, as a result of a devaluation in the pound and other macro-economic circumstances, the British Eagle airline entered into voluntary liquidation. The consequence, almost seven years later, was the decision of the House of Lords in British Eagle, a case which marked a major turning point in the life of the common law anti-deprivation rule ('the rule'). Just over 30 years later, another economic crisis and another major insolvency have re-opened the debate as to the precise ambit of the anti-deprivation rule. In Perpetual Trustees, the Court of Appeal heard the joint appeal of two cases which had returned conflicting views in the court below. The court used a narrow interpretation of the rule, holding that it was based on the public policy that 'the property of an insolvent person must be administered for the benefit of his creditors in accordance with the provisions of what is now the Insolvency Act 1986'. The relevant provisions of the Insolvency regime for this purpose were those which referred to the distribution of assets pari passu, namely rule 4.181 of the Insolvency Rules 1986 and sections 107 and 323(8) of the Insolvency Act 1986.
It is argued that the court, by grounding the rule in the pari passu distribution principle, have frustrated the public policy aims which the rule represents. The rule is not concerned with the distribution of assets, instead its focus is the maintenance of the insolvent estate for the benefit of the general body of creditors and, as such, is a manifestation of the principle of collectivity identified by Professor Goode. This article will show that the anti-deprivation rule, as it was described in Perpetual Trustees, is deficient and that the opportunity should be taken to re-conceptualise the rule as the direct application of the principle of collectivity. It will then show how a rule based on the maintenance of the debtor’s estate can render certain an area of law which has become littered with arbitrary distinctions which stifle the public policy inherent in the anti-deprivation rule.

The anti-deprivation rule: a life and untimely death
The 19th century rule
The anti-deprivation rule has been a fixture of the English common law for over 200 years and the public policy behind it has been expounded on numerous occasions by the courts in the 19th century. In the paradigm case of ex p Mackay, the rule was used to strike down a provision which purported to double the royalties payable to a creditor upon the debtor’s bankruptcy. James LJ explained that 'a man is not allowed, by stipulation with a creditor, to provide for a different distribution of his effects in the event of bankruptcy from that which the law provides. It appears to me that this is a clear attempt to evade the operation of the bankruptcy laws'.