0370 1500 100
Restructuring & Insolvency

Section 127 Claims – The Liquidators Win Again

The recent case of Dingley and others v Nisa Retail Ltd (Re MKG Convenience Ltd (in liquidation)) [2019] EWHC 1383 (Ch) shows us just how difficult it is to avoid repaying payments and restoring other transactions made in breach of Section 127 (S127) of the Insolvency Act 1986.

The case raised three interesting points:

1. It is still very difficult to avoid the implications of S127 in relation to any disposition, whether by payment from a bank account, transfer of assets or other transactions, such as the issuing of credit notes without a validation order

2. Direct debts aren't excluded in any way

3. A “change of position defence” is possible but unlikely to succeed in all but exceptional circumstances.

Background

In 2010, MKG Convenience Ltd, who ran three stores in Solihull, Northfield and Selly Oak, was incorporated and became a member of the Nisa group, using the Nisa brand and being supplied stock by Nisa. They held £31,104 worth of shares in the retail group, and had paid £25,000 as a cash deposit for the supply of stock. Nisa received direct debit authorities for payment of the goods they supplied. 

On 16 March 2015, a winding up petition was presented against MKG Convenience Ltd. This was advertised on 7 April 2015. A compulsory winding up order was made on 7 May 2015, and liquidators were appointed on 14 May 2015. 

In June, just after the winding up order, MKG Convenience Ltd transferred two of its three stores and its shares to a third party, UR Local Express Ltd (URL). Nisa continued to receive weekly payments from the company until 20 May 2015. 

The liquidators of MKG Convenience Ltd sought repayment of:

  • Payments (totalling approximately £162,307)
  • Deposit (£25,000) 
  • Shares (valued at £31,104).

Validation order 

Nisa accepted the payments were prima facie void but sought a validation order to validate them. In line with the judgment of Express Electrical Distributors Ltd v Beavis and others [2016] EWCA Civ 765, the court couldn’t find that the payments to Nisa benefitted the general body of creditors as a whole.

Change of Position defence

Nisa further submitted a “change of position” defence to the liquidators claim. They said that they were unknowingly in receipt of the invalid payments and had continued to supply stock to MKG Convenience Ltd. As a result, they said that that they should be refunded the value of the stock. The judge found that this defence can be used, but would be dealt with on exactly the same basis as an application for a validation order so there would be no advantage in using it. 

The deposit

It wasn’t disputed that MKG Convenience Ltd would have been indebted to Nisa for more than the value of the deposit. It was also determined that no part of the deposit could be recovered by the liquidators as Nisa had a right to keep possession of these funds.

The shares and the transfer of the stores

The liquidators sought an application to recover the shares from Nisa, not URL, the recipient of the shares. However, although the share transfer was a disposition which fell foul of S127, it wasn’t in favour of Nisa so no order was made in relation to the shares. If URL had been included as a respondent, the claim would have been successful against them.

Published: June 2019

Contact us

If you have any questions about Section 127 claims, or want to discuss business turnaround, restructuring, insolvency, commercial recoveries or liquidation, please contact our Restructuring and Insolvency team.  

 

For general enquiries

0370 1500 100

Or we can call you back at a time of your choice

  • Phone lines open 24/7, 365 days a year

Contact us today

For a free initial consultation

Prefer not to call?

Use our form

This data will only be used by Irwin Mitchell for processing your query and for no other purpose.

© 2019 Irwin Mitchell LLP is Authorised & Regulated by the Solicitors Regulation Authority. Our Regulatory Information.