Can a sum, which is sought to be recovered by a liquidator under section 127 of the Insolvency Act 1986, include interest?

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Published by a ��ɫ�� Restructuring & Insolvency expert

Published on: 03 November 2015

Property dispositions in compulsory liquidations

Section 127 of the Insolvency Act 1986 (IA 1986) provides that, in a winding up by the court (ie compulsory liquidation), any disposition of the company's property made after the commencement of the winding up is void, unless the court orders otherwise by granting a validation order. Under IA 1986, s 129, a winding up by the court commences on the date on which the winding-up petition is presented at court, albeit that IA 1986, s 127 only takes effect if a winding-up order is made on that petition. However, an application for a validation order can be made prior to the making of the winding-up order (and would usually be recommended to be made at that time, and prior to the disposition occurring).

According to the commentary from Bailey & Groves, available on Lexis®Library on Avoidance of dispositions after commencement of winding up:

'There is no definition of 'disposition'

Jurisdiction(s):

United Kingdom

Key definition:

Insolvency definition

What does Insolvency mean?

This can be defined by two alternative tests (Insolvency Act 1986, s 123):

• cash flow test: a company is solvent if it can pay its debts as they fall due, no matter what the state of its balance sheet (Re Patrick & Lyon Ltd [1933] Ch 786);

• balance sheet test: a company which can pay its debts as they fall due may be insolvent if, according to its balance sheet, liabilities (including contingent liabilities) exceed assets.

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