Wilson & Anor v SMC Properties Ltd & Anor

Section 127 of the Insolvency Act 1986 makes post-petition dispositions void unless validated by the court. The validation discretion is at large, but must protect creditors and prevent dissipation or undervalue. A transaction may be validated where the evidence shows that creditors suffered no loss, including where a forced-sale assumption properly reduces the valuation. The court must assess the evidence at the transaction date and should not treat a hypothetical prospective validation application as decisive in a retrospective application.

The liquidator and the company appealed against an order validating, under section 127 of the Insolvency Act 1986, a contract for the sale of 58G Hatton Garden and the subsequent transfer. The petition was presented before the contract, advertised before completion, and followed by a winding-up order.

The Registrar found that the purchaser acted in good faith and that the sale was not a significant undervalue, taking account of the property’s condition and the likelihood of a distress sale by the secured lender. The appeal challenged the Registrar’s approach to creditor protection, valuation evidence and the validation discretion.

1. Appeal dismissed. The Registrar had jurisdiction to validate the post-petition disposition under section 127. The discretion was at large, subject to ordinary discretionary principles and the liquidation provisions.
2. The policy of section 127 protects creditors and ordinarily secures pari passu distribution. It also prevents dissipation of assets, including transactions at an undervalue. Although the Registrar’s formulation placed too much emphasis on preference, he fully considered whether the sale caused creditor loss.
3. The Registrar was entitled to find that the secured lender would probably have intervened and that a resulting distress sale would have achieved a discounted price. The special assumption of a constrained marketing period therefore justified a lower valuation, so the actual price exceeded the property’s value on the relevant basis.
4. The court was entitled to prefer tested expert evidence to failed offers, untested valuations, historic purchase price and informal estimates. No loss to creditors was shown, so validation was justified.
5. The prospective-application cross-check was unhelpful and non-decisive. A prospective application would involve less complete evidence and might fail for insufficient proof that the property had been properly marketed.

High Court (Chancery Division): Appeal from the Registrar’s order of 2 April 2015 dismissed. The validation order was upheld.