Dingley & Ors v Nisa Retail Ltd

A disposition made after presentation of a winding-up petition is void unless validated. A validation order is exceptional. Ordinary-course dealing, good faith and ignorance of the petition are relevant but insufficient without special circumstances showing that the transaction benefited the general body of unsecured creditors. The same insolvency policy constrains a change-of-position defence to restitution of money paid under a void disposition. Such a defence is available in principle, but it will rarely succeed where repayment would undermine the pari passu distribution of assets.

The joint liquidators of MKG Convenience Ltd sought recovery of direct-debit payments made to Nisa Retail Ltd after presentation of a winding-up petition. They also sought relief concerning a cash security deposit and shares in Nisa. Nisa accepted that the payments were prima facie void under Insolvency Act 1986, but sought retrospective validation or relied on change of position. It disputed that the deposit and shares involved void dispositions in its favour.

The court had to determine whether the payments should be validated, whether Nisa could retain them through a change-of-position defence, and whether any relief was available concerning the deposit or the share transfer.

1. Direct-debit payments. Under Insolvency Act 1986, s 127, dispositions of company property after presentation of a winding-up petition are void unless the court otherwise orders. By s 129(2), the winding up was deemed to commence on presentation of the petition. The payments were dispositions of the company’s property.
2. Validation. Applying Express Electrical Contractors Ltd v Beavis [2016] EWCA Civ 765, the strong policy favouring pari passu distribution is the starting point. A validation order requires special circumstances showing that the transaction has been or will be beneficial to creditors generally, or other exceptional circumstances. It is insufficient that the transaction occurred in the ordinary course, was made in good faith, or was entered into without knowledge of the petition.
3. Nisa failed to establish any benefit to the company or its creditors. The evidence did not show that post-petition supplies produced profit for the company, that sale proceeds reached its accounts, or that stock remained available to the liquidators. The validation application was refused.
4. Change of position. A restitutionary claim for money paid under a void disposition may in principle be subject to change of position, as explained in Rose v AIB Group (UK) Plc [2003] EWHC 1737 (Ch) and Officeserve Technologies Ltd v Annabel's (Berkeley Square) Ltd [2018] EWHC 2168 (Ch). The defence is constrained by the insolvency policy underlying s 127. It can succeed only where the defendant’s circumstances outweigh that policy and make repayment unjust. Nisa failed to prove good faith or an inequitable change of position. The alternative defence also failed.
5. Deposit and shares. The company’s indebtedness exceeded the £25,000 deposit, so the deposit could not be recovered, whether by contractual application or insolvency set-off under Insolvency Rules 1986, r 4.90. The registered transfer of shares to URL was not a disposition in favour of Nisa. Any challenge had to be brought against URL, with possible rectification of Nisa’s register thereafter. No order was made against Nisa concerning the shares.