BLP Workshop 13 Notes

The facts indicate the balance sheet insolvency (depreciation is not there) and cash flow
insolvency (issue with repaying HMRC)
Preparatory Task:
3 main transaction to consider:

 Sale of Chalet to Simon
 £50k loan to Gordon with a floating charge
 Bedford Bank repaid
Floating charge:
1. Void if not registered within 21 days, starting with the day after creation-> search
CoHo
2. s.238 IA- Transaction at undervalue

Apply to court first
Notice of intention to appoint the administrator is the starting date
It happens when a company gives a gift which is significantly less than its value
Company has not made a gift
The company has received something in return (consideration)- yes, the £50k
But has not provided consideration in return, as granting of security to a floating charge is
not consideration, it does not reduce the value of Company’s asset (M.C. Bacon case)
This is not a TUV as Blooms (per M.C. Bacon)
 did not make a gift + received consideration from Gordon (extra £50k + not called to
repay £250 loan)
 also not received significantly less consideration in £ or £’s worth than it gave (in £ for
£’s worth)- C gave no consideration as security does not reduce C’s assets
if we were to consider this then you also must show that the C was insolvent at the time
(s.240(2))
Gordon is an associate of a connected person, means that Gordon is a connected person
it was granted within 2 years
as Gordon is a connected person then it is automatically presumed to be insolvent as Gordon
is a connected person
this is a rebuttable presumption
defence: if it was made in good faith to carry out the business, reasonable grounds to
believe it was for the good of the company
court would then make an order
The court would make an order if it was to find that the transaction is undervalue
s.238(3)+s.241. The order would be that the transaction is voidable, you work on the
basis that it never happened.
3. s.239 IA- Preference

Apply to court first
when the March 2018 loan is given Gordon is now becoming a secured creditor, the floating
charge applies to the 2017 £250k loan
secured creditors take preference
yes, Blooms has put Gordon in a better position on insolvency, he has gone from being an
unsecured creditor (£250k loan) to a secured creditor- it fulfils the definition
the company must be insolvent-it could be, based on the facts (undervalued goodwill)- tell
administrator to investigate, find evidence
there is a connected person here, so the relevant period is 2 years
automatic, rebuttable presumption, that the company decided to prefer Gordon by adding
the floating charge
Relevant time is 2 years before the onset of insolvency and Gordon is a connected person,
because he is an associate (spouse) of the connected person Mary who is a Director
Onset of the insolvency is the 19th August 2019 and the floating charge was granted on 9th
March 2018 (so within the 2 years period of the relevant time)
The administrator would have to prove, by providing evidence that the company was
insolvent at the time, being the 9th March 2018 or as a result
Because there is a connected person there is a rebuttable presumption that Blooms was
influenced by a positive desire to prefer Gordon as he is a connected person.
 But Company can show it had no choice (MC Bacon)
Defence: In MC Bacon there was no preference as the Company had no choice, but to grant
the security, the Bank would not grant the loan
 so in this case: e needed the £50k loan for the upgrade, the upgrade was seen as to
save the business and therefore we needed the loan and therefore grant the security,
we also had to make sure they are not going to ask for £250k and so we had no
choice
Probably not a preference based the facts (maybe not insolvent, also possible good defence)
The court would make an order if it was to find that the transaction is undervalue
s.239(3)+s.241. The order would be that the transaction is voidable, you work on the
basis that it never happened.
4. s.245 IA- Invalid Floating Charge
no steps required by Oswald, if it comes within the definition then it is automatically invalid
whether there was no fresh consideration
it will be invalid for the existing loan £250k, but provided it was registered properly then it
will be applicable to the loan of £50k
floating charge granted for the existing debt (£250 k) as well as new £50k.
we have a connected person (changes the relevant time from 12 months to 2 years)
the transaction was within the relevant time (2 years period) before the onset of insolvency
as a floating charge is a connected person, there is no need to prove that the company was
insolvent on the 9th March 2018 (usually this must be proven)
floating charge in relation to the existing £250 loan automatically void. Gordon is unsecured
for the £250k but secured for £50k provided it was properly registered.
Practical step would be to write to Gordon and inform him that his £250 is unsecured.
There is no defence to this.
Sale of the chalet:

 TUV
 Apply to court
 it was not a gift, but it was sold significantly below the market value and so the
definition is fulfilled- £225k under MV
 It was within the relevant time of 2 years
 Simon is a connected person as he is a Director 249(a), automatic presumption that
the company was insolvent at the time
 Could they rebut it? We don’t know
 No defence is possible, not able to show it was in good faith as it was sold way below
the MV
 The court order would be that the transaction is void, Simon would have to account
for the profit he made £225k.
Bedford Banks repayment:

 Yes, for two reasons: 1) the bank is a creditor, the Bank is put in a better position, 2)
so are the guarantors (Elizabeth and Justin), the loan is repaid, put in the better
position as now they are discharged of the guarantee
 E+J are connected persons as they are D + SH, so the relevant time is 2years and for
the Bank 6 months
 As there are connected persons so there is a rebuttable presumption there was a
desire for preference
 Trouble to show that there was no other choice than to repay, as for example they
did not pay back to the HMRC, the company had a choice to pay other creditors,
 Possibly insolvent: HMRC -> cashflow insolvent, while balance sheet deficiency->
balance sheet insolvency
 The order the court would make: the bank to repay the money and the guarantees
are reinstated
Workshop Task 1:
 4 May 2012- was not registered, you cannot enforce it, void against liquidators,
administrators and other credits- 21 days beginning with the day after creation,
regime changed recently, 2012 had a different regime, now it is voluntary to register,
potential professional negligence issue for lawyers acting
 How are the charges ranked?
o Fixed charges trump floating charges
o Fixed charges as same asset in order of date created
o Floating the same as above
 Priority charges:
o 20/07/2019 fixed to Woodbridge
 Appoint the LPA receiver to seize + sell factory (likely outcome
liquidation)
 The receiver act in interest of the appointer only
o 07/08/2019 fixed to Midlays
o 01/06/2019 floating to County
o 04/11/2019 floating to Southsire
o 04/05/2019 unsecured to County
QFC: Over substantially all company’s assets “undertaking” and so either appoint the
administrator or Sch. B1 para 14 applied
Administration’s aim is to rescue the company and the Administrator act in the interest of all
the creditors as a whole
Enforcement event= non-payment -> appointment of administration
Any creditor can bring a petition for compulsory liquidation (s.124 IA). The grounds is to
show that the Company is unable to pay its debt 122(1)(f). There are four ways to show it:
 Cashflow insolvent
 Balance sheet insolvent
 Issue of statutory demand (if payment above £750) if not repaid within 3 weeks, then
petition for liquidation (Statutory demand)
 Summary judgement to enforce the judgement, if they can’t repay it then (Judgment
and execution)
Workshop Task 2:
Albion will appoint the LPA receiver, who will then take over and sell the premises. Albion
will receive £750,000, still shortfall of £161,000 of their debt (they are owed £911,000). They
are now unsecured creditor for the £161,000.
Now look at the uncharged assets, which will be sold, and you will start paying people in the
correct order (chapter 19.6 in the book).
Pay liquidators and preferential creditors and then unsecured creditors.
All the assets: £129,325.
1. Liquidation costs
£129,325 – 15,000= 114,325 (after liquidation costs)
2. Preferential creditors
£129,325 – 20,000 (for employees, standard for each employee maximum of £800 statutory)
= £94,325
3. Unsecured creditors: 161,000+41,000+28,000=230,000
94,325/230,000=0,4101087 (liquidation dividend)
Each creditor will get around 41p for each £1 they are owed
So now look how much each creditor will get

Albian: 161,000 x 0,4101087= £66 027, 50
Trade: 41,0000 x 0,4101087= £16 814,46
PAYE: 28,000 x 0,4101087= £11 483, 04
Check whether the numbers sum up together and make sense!!!!

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The facts indicate the balance sheet insolvency (depreciation is not there) and cash flow

insolvency (issue with repaying HMRC)

3 main transaction to consider:

2. s.238 IA- Transaction at undervalue

3. s.239 IA- Preference

4. s.245 IA- Invalid Floating Charge

Sale of the chalet:

Bedford Banks repayment:

All the assets: £129,325.

So now look how much each creditor will get

Check whether the numbers sum up together and make sense!!!!

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