Crumpler & Anor (Liquidators of Peak Hotels And Resorts Ltd) v Candey Ltd

Under section 245 of the Insolvency Act 1986, a floating charge created during the relevant period is valid only to the value of new money, goods or services actually supplied after its creation. The valuation of services under section 245(6) is an objective and retrospective exercise. It concerns the work actually done, not an unused facility or the commercial fairness of the parties’ bargain. Terms requiring payment of a fixed fee are terms relating to consideration and must be disregarded. The ordinary-course-of-business inquiry excludes premiums or special terms attributable to the recipient’s risk of non-payment. Contractual interest is separately preserved by section 245(2)(c) and cannot also be recovered through an uplift in the value of the services.

The joint liquidators of a BVI company sought to avoid, under section 245 of the Insolvency Act 1986, a floating charge granted to the company’s solicitors as security for a fixed-fee agreement.

Earlier proceedings established that the charge was floating and had been created at a relevant time. At a subsequent valuation hearing, the High Court held that the services supplied were worth the entire fixed fee: [2017] EWHC 3388 (Ch). The liquidators appealed.

The central issue was whether the statutory value of legal services was the agreed fixed fee, including the value of an available facility, or the objective value of the work actually supplied after the charge was created.

Decision

1. The court allowed the liquidators’ appeal. It set aside the conclusion that the whole fixed fee represented the value of the secured services and remitted valuation to the High Court.

2. Section 245 protects unsecured creditors by invalidating a floating charge created in the relevant period, except to the statutory extent of new value supplied after its creation. It affects the security only. It does not alter the creditor’s underlying contractual debt or prevent proof for the unsecured balance.

3. The services to be valued were the legal services actually supplied after 21 October 2015. The agreement to make a facility available was not the relevant service, particularly given the defined litigation work and the solicitors’ contractual right to terminate. The commercial fairness of the fixed-fee agreement between client and solicitor was irrelevant to the statutory calculation.

4. Section 245(6) required an objective, retrospective assessment of the sum reasonably obtainable for supplying the work in the ordinary course of the supplier’s business and on the same terms apart from consideration. The fixed fee, and the whole concept of payment for the services by a fixed fee, had to be disregarded. The solicitors’ standard time-based terms could provide helpful but non-conclusive guidance.

5. The calculation could not include a premium for the client’s credit risk or compensation for deferred payment. Section 245(2)(c) separately preserved contractual interest. Considerations arising under section 61(2)(a) of the Solicitors Act 1974 could not be imported into the different statutory exercise.

• Court of Appeal (Civil Division): Allowed the liquidators’ appeal and remitted the statutory valuation issue to the High Court: [2019] EWCA Civ 345.
• High Court (Chancery Division): Held that the value of the services under section 245 was the whole fixed fee. That conclusion was reversed: [2017] EWHC 3388 (Ch).
• High Court (Chancery Division): In earlier preliminary proceedings, held that the charge was floating and that the conditions for section 245 were met: [2017] EWHC 1511 (Ch); [2017] Bus. L.R. 1765. A related appeal concerning money paid into court was dismissed: [2018] EWCA Civ 2256.