Edwards v Aurora Leasing Ltd & Anor

Section 284(4)(a) of the Insolvency Act 1986 protects an innocent recipient of property or a payment made during the statutory period before bankruptcy. The defence requires receipt in good faith, for value, and without notice that the bankruptcy petition has been presented.

“Value” is not confined to value received by the bankrupt’s estate. It is sufficient that the receipt was not gratuitous and that consideration was given. The provision is a protective defence forming part of the statutory scheme, rather than an exception requiring a restrictive construction. Good faith requires more than personal honesty where the circumstances should have prompted inquiry.

The applicant was the trustee in bankruptcy of Jagdev Singh Wasu. He sought recovery under section 284 of the Insolvency Act 1986 of payments made before the bankruptcy order but after presentation of the bankruptcy petition.

The application concerned payments made to Aurora Leasing Ltd for dental equipment and to Howard de Walden Estates Ltd for commercial premises. The respondents accepted that the payments fell within section 284(1) or (2), and the trustee accepted that they had acted in good faith and without notice of the petition.

The central issue was whether the respondents had received the payments “for value” under section 284(4)(a), including where the benefit was provided through transactions involving companies or a partnership connected with the bankrupt.

1. Application dismissed. The payments to Aurora Leasing Ltd and Howard de Walden Estates Ltd were protected by section 284(4)(a) of the Insolvency Act 1986.
2. Section 284(4)(a) is a protective defence intended to prevent unfairness to innocent third parties dealing with a person whose title may subsequently be displaced by bankruptcy. It forms part of the statutory principles and is not an exception which must be given an artificially narrow construction.
3. The three elements of the defence are receipt before commencement of the bankruptcy, in good faith, for value, and without notice that the petition has been presented. “Value” is not expressly qualified by a requirement that it enter the bankruptcy estate. A receipt is for value provided that it is not gratuitous and consideration has been given.
4. The policy of preserving the bankrupt’s estate and ensuring pari passu distribution does not override the statutory protection of innocent third parties. Authorities concerning dispositions under section 127, or transactions at an undervalue under sections 238 and 339, arose in different statutory contexts and did not justify importing additional words into section 284(4)(a).
5. A payment made through an intermediary may itself be a payment or disposition within section 284(1) or (2). Whether the intermediary acted for the bankrupt or for an associated company did not prevent the recipient from relying on section 284(4)(a) on the facts of this case.
6. Good faith requires more than the absence of dishonesty. A recipient who knows that the debtor is in serious financial difficulty, and accepts payment while deliberately avoiding inquiry into circumstances requiring it, may lack good faith.
7. The payments were commercial transactions. The Aurora payment triggered the purchase and leasing of dental equipment. The payments to de Walden enabled continued use of the premises. The evidence supported the inference that the bankrupt’s estate received corresponding benefit through enforceable rights against the connected entities.