In Re Peak Hotels and Resorts Limited (In Liquidation)

This appeal concerned the correct method of valuing services for the purposes of section 245 of the Insolvency Act 1986 where a floating charge had been granted to a solicitor under a fixed fee agreement shortly before insolvency. The court held that section 245 invalidates a floating charge except to the extent of the value of money, goods or services actually supplied at or after the time of creation, and that valuation must be carried out under the objective test in section 245(6). The contractual amount said to be payable as "consideration" (the fixed fee) and any terms relating to payment must be disregarded for the statutory valuation exercise; the valuation is of the services actually supplied in the ordinary course of the supplier’s business and on the same terms apart from the consideration. The appeal was allowed and the case remitted for the High Court to value the services in accordance with that statutory test.

Background and parties. Peak Hotels and Resorts Limited (PHRL), a BVI company, granted a deed of charge in favour of its London solicitors Candey Limited on 21 October 2015 as security for a "Fixed Fee" agreement. PHRL was wound up in the BVI in February 2016; foreign liquidators were recognised in England under the Cross-Border Insolvency Regulations 2006 and applied to the English courts under section 245 of the Insolvency Act 1986 to invalidate the floating charge except to the extent of new value supplied.

Nature of the application and procedural history. The Liquidators applied under section 245 for an order adjusting/invalidating the floating charge. Preliminary issues (including whether the charge was floating and whether sums paid into court were within the charge) were decided at first instance: the charge was held to be floating and the relevant sums were within it. A separate trial before HHJ Raeside determined valuation of services under section 245(6); he held the Fixed Fee equalled the value of services and awarded the whole fee. The liquidators appealed to the Court of Appeal.

Issues framed by the court.

• Whether, for the purposes of s.245(2)(a) and (6), the relevant "services supplied" are the work actually done by the solicitor after the charge was created or whether the value of an available facility (the contractual fixed-fee arrangement) should be treated as the supplied service.
• Whether the contractual fixed fee and related payment terms may be relied on as the measure of value under s.245(6), and whether external indicia such as the reasonableness of the fixed fee under the Solicitors Act 1974 are relevant to the s.245 exercise.
• How the valuation in s.245(6) is to be conducted: the objective test and the role of the supplier's ordinary course of business and exclusion of consideration-related terms.

Court’s reasoning and result. The Court of Appeal held that section 245 focuses on the value of the services actually supplied on or after the creation of the charge and that subsection (6) mandates an objective, retrospective valuation: the amount in money which at the time the services were supplied could reasonably have been expected to be obtained for supplying them in the ordinary course of the supplier's business and on the same terms apart from the consideration. The contractual Fixed Fee and other terms relating to the consideration must be disregarded for that statutory valuation. The court rejected the view that the supply should be treated as an abstract, uncalled facility or that the contractual fairness of the fee (or expert opinion under s.61 Solicitors Act) should determine the s.245 valuation. The Court allowed the appeal and remitted the matter to the High Court to carry out the valuation under s.245(6) in accordance with this guidance.

Wider context. The court noted the lack of prior authority on this precise point and gave guidance intended to reduce future uncertainty about how s.245(6) should be applied.

Appeal allowed and remitted to the High Court. The Court of Appeal held that section 245 invalidates a floating charge except to the extent of the value of money, goods or services actually supplied at or after the time of creation, and that the valuation must be performed objectively under section 245(6) by reference to the amount which could reasonably have been expected to be obtained for the services in the ordinary course of the supplier’s business on the same terms apart from the consideration; contractual payment terms (including a fixed fee) and any credit premium for delay must be disregarded for that statutory valuation.

Recognition of the BVI liquidation in England under the Cross-Border Insolvency Regulations 2006 (Schedule 1; Article 23). Preliminary High Court determinations by HHJ Davis-White QC in [2017] EWHC 1511 (Ch) on characterisation and threshold issues. Trial on valuation before HHJ Raeside QC, reported at [2017] EWHC 3388 (Ch). An earlier related appeal to this court on whether monies paid into court were subject to the charge was dismissed: [2018] EWCA Civ 2256. The present decision is [2019] EWCA Civ 345 (Court of Appeal).