Buchler & Anor v Talbot & Ors

Liquidation expenses may be payable out of assets subject to a floating charge, even where the charge crystallised before the liquidation. The expression the company’s assets in section 115 of the Insolvency Act 1986 includes property subject to a charge which, as created, was a floating charge. The same assets may fall within both the receivership regime and the liquidation regime. Assets already applied by a receiver in paying receivership preferential creditors or the debenture holder cease to be available for the later statutory priority. Unapplied assets remain available for liquidation expenses and liquidation preferential debts in priority to the chargee.

The joint liquidators of Leyland Daf Limited sought payment of liquidation expenses from floating-charge realisations held by administrative receivers. The charge had crystallised before the creditors’ voluntary liquidation. Mr Justice Rimer held that the expenses had priority over the claims secured by the charge, following In re Barleycorn Enterprises Ltd and In re Portbase Clothing Ltd.

The secured creditor appealed. The central issues were whether Insolvency Act 1986 sections 115, 175 and 251 required the floating-charge assets to be treated as company assets despite prior crystallisation, and whether the section 40 receivership regime was exclusive.

1. Appeal dismissed. The order below was upheld. Permission to appeal to the House of Lords was refused.
2. The Court followed In re Barleycorn Enterprises Ltd. That decision established that statutory references to assets, including the company’s assets, encompass assets subject to a floating charge. The Court held that the earlier decision in In re Regent’s Canal Ironworks Company, Ex parte Grissell was not irreconcilable with Barleycorn, because the later decision explained that the 1888 and 1897 legislation had changed the law.
3. The definition in section 251 of the Insolvency Act 1986 means that a floating charge remains a floating charge for the statutory purposes if it was floating when created. Accordingly, prior crystallisation does not prevent the assets from falling within section 175(2)(b).
4. The Court rejected the submission that the section 40 regime was self-contained and exclusive. Sections 40 and 175(2)(b) may apply successively to the same charged assets.
5. Assets already applied by the receiver in paying receivership preferential creditors or satisfying the debenture holder’s claims cease to be property comprised in or subject to the charge for the purposes of section 175(2)(b). Assets not so applied, and remaining in the receiver’s hands when the liquidation begins, remain subject to the statutory priority.
6. Since section 115 and rule 4.218 give liquidation expenses priority over all other claims, those expenses are payable from the remaining floating-charge assets before the secured creditor’s claims.

• Court of Appeal (Civil Division): Appeal from the order of Mr Justice Rimer in the Chancery Division dismissed. The court upheld the conclusion that liquidation expenses had priority over the floating-charge holder’s claims and refused permission to appeal to the House of Lords.