Waypark Commercial Mortgage 1 Limited v Vanguard Number 1 Limited (in liquidation)

The court declared that section 130(2) of the Insolvency Act 1986 does not apply to a sale carried out by a secured creditor pursuant to a power of sale contained in a fixed legal charge or mortgage. The decision turned on the proper construction of the words "action or proceeding" in section 130(2), read in light of authority which construes "proceeding" as limited to court or quasi-legal proceedings. The statutory purposes of section 130(2) (protecting pari passu distribution and the claims adjudication process) do not require the moratorium to prevent a secured creditor from selling charged property, because that property and its proceeds are not part of the general assets available for pari passu distribution unless the security is impugned.

The court relied on Financial Conduct Authority v Carillion plc, Bristol Airport plc v Powdrill, Mortgage Debenture Ltd v Chapman and Sowman v David Samuel Trust Ltd in reaching its conclusion. The liquidators did not appear. The court also recorded that, had it been necessary, it would have granted leave under section 130(2) to permit the sale.

Background and parties: The applicant, Waypark Commercial Mortgage 1 Limited, held a debenture containing a legal charge over Oak House, Worcester, to secure the respondent's indebtedness. The applicant elected to exercise its contractual power of sale under the debenture after demanding payment. The respondent, Vanguard Number 1 Limited, was in liquidation following a winding-up order presented by a different creditor. The purchaser's solicitors expressed concern that section 130(2) Insolvency Act 1986 might vitiate the applicant's sale.

Relief sought and procedural posture: The applicant applied urgently for a declaration that section 130(2) did not apply to its sale under the fixed legal charge. As an alternative, the applicant sought leave under section 130(2) to proceed with the sale. The liquidators did not attend or make representations.

Issues framed:

• whether the words "action or proceeding" in section 130(2) encompass a secured creditor's private exercise of a contractual power of sale; and
• whether the statutory purposes of section 130(2) justify restraining such a sale or, alternatively, whether leave should be given to permit the sale.

Court's reasoning: The court followed the approach in Financial Conduct Authority v Carillion plc that "action" should be read as referring to court proceedings and that the broader question concerns the proper scope of "proceeding." It relied on Bristol Airport plc v Powdrill to limit "proceeding" to legal or quasi-legal proceedings (including arbitration) and on Mortgage Debenture Ltd v Chapman for the twin statutory purposes of section 130(2): protecting pari passu distribution and preserving claims adjudication procedures. The court held that execution and distress are included where they risk giving a creditor priority, but a secured creditor’s sale under a fixed charge does not have that effect because secured property and the proceeds of its sale fall outside the general estate available for pari passu distribution unless the security is attacked. Sowman v David Samuel Trust Ltd supported the proposition that compulsory winding up does not impede a receiver's power to dispose of charged property. Applying these principles, the court concluded the moratorium in section 130(2) did not prevent the applicant's sale; alternatively, the court would have given leave to sell.

Outcome: The court granted the declaratory relief sought and noted that it would have granted leave if leave had been necessary.

Declaration granted: the court declared that section 130(2) Insolvency Act 1986 does not apply to a sale of property by a secured creditor pursuant to a power of sale contained in a fixed legal charge or mortgage. The rationale was that such a sale does not offend the pari passu principle because the charged property and its proceeds are not part of the general assets available for distribution unless the security is impugned. The court further recorded that, had it been necessary, it would have granted leave under section 130(2) to permit the sale.